Frog Blog

Tax Relief for Hurricane Harvey Losses

Hurricane Harvey took a devastating toll on Houston and its surrounding areas, many of our clients suffered damage to their homes and properties. As part of its relief package, the Internal Revenue Service has extended the filing deadline for those residing in Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton counties until January 31, 2018. The extension to file your tax return does not apply to the payment of your tax liability. You are still responsible for having paid your liability by April 15, 2017 – penalties and interest will still be assessed from that date.

Included in the filing extension are the due dates for the 2017 3^rd and 4^th quarter estimated tax payments which are normally due September 15, 2017 and January 16, 2018 respectively. Taxpayers now have until January 31, 2018 to make those payments as well.

In addition to the filing deadline extension, the IRS offers taxpayers a deduction for losses attributable to the hurricane. This loss can be deducted on either your 2016 or 2017 tax return. Since the area is now a federally declared disaster area, if you have already filed your 2016 return, you can amend your return and claim the loss there. Claiming a disaster loss on the 2016 tax return may result in a lower tax for that year, often producing or increasing a cash refund.

To claim the loss on your tax return, you will need to supply us with the following information to be reported on your tax returns:

1. Total cost of damaged property (property including home, furnishings, vehicles)
2. Fair market value of property prior to disaster
3. Fair market value of property after disaster
4. Insurance reimbursement, if any.

For those of you that have suffered losses due to the hurricane, the IRS is also allowing hardship distributions or borrowings form 401(k) or 403(b) for eligible retirement plan participants. Plans will be allowed to make these distributions before they have been formally amended to do so. Please note, the current tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less and hardship distributions are general taxable and subject to a 10% early withdrawal penalty.

We at Moore & Botzong are here to assist you in the recovery process by making your tax filing burden easier. We hope that any losses you may have suffered, if any, were not too substantial. We are here to answer any questions you might have regarding the best course of action for you to take regarding your tax situation, the hurricane losses and look forward to hearing from you.

Many business owners buy accounting software and, even if the installation goes well, eventually grow frustrated when they don’t get the return on investment they’d expected. There’s a simple reason for this: Stuff changes.

Technological improvements are occurring at a breakneck speed. So yesterday’s cutting-edge system can quickly become today’s sluggishly performing albatross. And this isn’t the only reason to regularly upgrade your accounting software. Here are two more to consider.

1. Cleaning up

You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. If inaccurate or garbled information goes into your system, the reports coming out of it will be flawed. And this is a particular danger as software ages.

For example, you may be working off of inaccurate inventory counts or struggling with duplicate vendor entries. On a more serious level, your database may store information that reflects improperly closed quarters or unbalanced accounts because of data entry errors.

A regular implementation of upgraded software should uncover some or, one hopes, all of such problems. You can then clean up the bad data and adjust entries to tighten the accuracy of your accounting records and, thereby, improve your financial reporting.

2. Getting better

Neglecting to regularly upgrade or even replace your accounting software can also put you at risk of missing a major business-improvement opportunity. When implementing a new system, you’ll have the chance to enhance your accounting procedures. You may be able to, for instance, add new code groups that allow you to manage expenses much more efficiently and closely.

Other opportunities for improvement include optimizing your chart of accounts and strengthening your internal controls. Again, to obtain these benefits, you’ll need to take a slow, patient approach to the software implementation and do it often enough to prevent outdated ways of doing things from getting the better of your company.

Choosing the best

These days, every business bigger than a lemonade stand needs the best accounting software it can afford to buy. Our firm can help you set a budget and choose the product that best fits your current needs.

© 2017

Are you overdue paying your tax bill? You may be contacted by a private collection agency. (The IRS is starting to use private firms as a result of a 2015 law requiring it.) The IRS has posted a sample letter on its website that it will send to taxpayers to notify them that their overdue accounts have been assigned to a private collection agency. The letter informs taxpayers that the collection agency will work with the taxpayer on payment options and offer a payment plan if he or she can?t pay the balance in full. Here?s the sample letter: http://bit.ly/2m86EXN

No innocent spouse relief! Spouses who file joint tax returns share responsibility for the return’s contents and the tax owed, but a spouse who can prove certain points may qualify for innocent spouse relief. In one case, a taxpayer claimed to have no knowledge of income and transfers from offshore accounts, which were unreported. Records showed she had access to the accounts, including signing authority, and used the accounts for business and personal reasons. On this basis, she failed the knowledge test and innocent spouse relief was denied. (TC Memo 2017-31)

Until recently, estate planning strategies typically focused on minimizing federal gift and estate taxes, such as by giving away assets during life to reduce the taxable estate. Today, however, the focus has moved toward income taxes, making the coordination of income tax planning and estate planning more important.

Why the change?

Since 2001, the federal exemption has grown from $675,000 to $5.45 million, meaning that fewer people have to worry about gift and estate tax liability. In addition, the top gift and estate tax rate has decreased from 55% to 40%, while the top individual income tax rate has increased to 39.6% — nearly as high as the top gift and estate tax rate.

The heightened importance of income taxes means that holding assets until death may be advantageous. If you give away an appreciated asset, the recipient takes over your tax basis in the asset, triggering capital gains tax should he or she turn around and sell it.

When an appreciated asset is inherited, on the other hand, the recipient’s basis is “stepped up” to the asset’s fair market value on the date of death, erasing the built-in capital gain. So retaining appreciating assets until death can save significant income tax.

Year end strategy

It is, however, possible to transfer appreciated assets now without your family taking a capital gains tax hit. Such a strategy can be beneficial if you have appreciated assets you’ve held more than one year that you’d like to sell, but you’re concerned about the impact on your 2016 tax bill.

You just need to have family members who are in the 10% or 15% regular income tax bracket and thus eligible for the 0% long-term capital gains rate. Then you can transfer the appreciated assets to them and they can sell the assets tax-free (to the extent the gains don’t push them into a higher bracket).

The transfer won’t create gift tax liability, either, as long as you can apply your $14,000 per year per recipient gift tax annual exclusion or a portion of your lifetime exemption. But before transferring the assets, make sure the recipient won’t be subject to the “kiddie” tax.

Of course, depending on the outcome of the November elections, gift and estate taxes could again surpass income taxes in estate planning importance for some families. If you have questions about coordinating your income tax planning with your estate plan, please contact us.

© 2016

At the beginning of the year, many people decide they’re going to get in the best shape of their lives. Similarly, many business owners declare that they intend to cut costs and operate at peak efficiency going forward.

But, like keeping up an exercise routine, controlling costs takes an ongoing effort. You need to not only review expenses now, but also commit yourself to doing so regularly. Here are some key points to keep in mind.

Choosing where to slim down

A good cost-control plan starts by clearly identifying manageable expenses in every business area — no exceptions. Prime candidates include:

• Contracts for phone and data service, hardware, and software,
• Lease agreements for office space, plant and warehouse space, and equipment,
• Mission-critical supplies and assets (such as safety gear, tools and vehicles),
• Maintenance contracts (for example, janitorial service),
• Repairs and leasehold improvements, and
• Utilities and office supplies.

Controlling expenses in these and other areas doesn’t mean one-time cost cutting, which is really just a reaction to a problem. Cost control requires foresight and strategic management. 

Going the distance

Indeed, many business owners sometimes confuse cost-control programs with cost-cutting initiatives. The difference is that a cost-control plan should be a long-term solution — not just a quick-fix measure to make budget or shore up a bad quarter.

Managing expenses should be a strategic decision that starts at the top and is clearly communicated down the organizational chart. Train and encourage your managers to accurately track costs with an eye toward maximizing profitability. In turn, team leaders should work with their employees to solve the problems driving up expenses. It’s always better to be proactive than reactive.

Boosting cash flow

Controlling costs is among the best ways to maintain or increase cash flow. Tightly managed expenses free up dollars for profitable operations, prevent excessive inventory and wasteful spending, and keep cash available for business growth. Need help with your cost-control regimen? Please contact our firm.

© 2017

As the saying goes, nothing lasts forever — and that goes for most companies. Then again, with the right succession plan in place, you can do your part to ensure your business continues down a path of success for at least another generation. From there, it will be your successor’s job to propel it further into perpetuity.

Some business owners make the mistake of largely ignoring succession planning under the assumption that it’s taken care of within their estate plans. Others create a succession plan but fail to adequately integrate it into their estate plan. To avoid these mistakes, it’s important to recognize the difference between succession planning and estate planning.

Similar, but different

Essentially, succession planning is the careful identification and training of those who will not only take over the day-to-day operations of your company, but also lead it forward to future growth. Your family members and other heirs will likely be affected here. But many others will be as well — including your named successor (whether or not a family member), business partners, employees, vendors and customers. 

Estate planning, meanwhile, involves determining the distribution of your assets through gifting strategies, wills and other tools (such as trusts and insurance). The people affected by it are your family members and other heirs.

Because of this important distinction, it’s critical to undertake succession planning and estate planning as a joint effort. After all, who gets leadership responsibilities in the business and who gets ownership interests in the business may or may not be the same.

You must ask yourself who is best suited to run the business when you depart, and what ownership transfer plan will treat you and all of your heirs fairly or otherwise achieve your estate planning goals. This includes, among other things, knowing when you want to retire and how much income you’ll need to do it.

Success today and tomorrow

Do you have both a clear succession plan and a well-documented estate plan? And are the two compatible in every respect? To make absolutely sure you can answer “yes” to both of these questions, please contact us. Our firm can help you develop plans that will distribute your assets per your wishes while putting your company in the best position to succeed going forward.

© 2017

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