Major Lease Accounting Change

The Financial Accounting Standard Board (FASB)’s lease accounting standard change, Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), presents dramatic changes to the balance sheets of lessees.  The ASU affects all companies and other organizations that lease assets such as real property, airplanes, and manufacturing equipment.

The standard is effective for US Generally Accepted Accounting Principles (GAAP) public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For private companies (i.e., those not meeting the FASB’s definition of a public business entity), the standard is effective for fiscal years beginning after December 15, 2019 and interim periods beginning the following year. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. Early application will be permitted for all organizations.

Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet.

For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.

Please contact us if you have any questions on how these changes affect your company.

New York State Paid Family Leave

Dean Carter, Patagonia VP and Head of HR – One of the major exponents of the #LeadOnLeave movement

As of January 1, 2018, most employees who work in New York State for private employers are eligible to take Paid Family Leave.

New York’s Paid Family Leave provides job-protected, paid time off so you can:

– bond with a newly born, adopted or fostered child;

– care for a close relative with a serious health condition; or

– assist loved ones when a family member is deployed abroad on active military service.

Employees can continue health insurance while on leave and are guaranteed the same or a comparable job after the leave ends.

Businesses play an important role in implementing Paid Family Leave.

Insurance coverage for Paid Family Leave benefits generally will be added to an employer’s existing disability benefits policy. Paid Family Leave coverage is funded by employee payroll contributions.

Through Paid Family Leave, employers may increase recruitment and retention as eligible employees are guaranteed:

– paid time off for 8 weeks in 2018, increasing to 12 weeks by 2021;

– job protection upon return from Paid Family Leave; and

– continuation of health insurance while out on Paid Family Leave.

 

Employers’ Responsibilities

– Ensure your company has Paid Family Leave coverage

Most private employers with one or more employees are required to obtain Paid Family Leave insurance. Contact your broker or insurer for information about available policies as well as options for paying your premium (e.g., whether it can be paid semi-annually, annually, or annually on a retrospective basis).

This insurance is generally added to an existing disability insurance policy.

– Inform your employees about Paid Family Leave

Update appropriate written materials distributed to your employees, such as employee handbooks, to include Paid Family Leave information.

If you do not have a handbook, provide written guidance to employees concerning their Paid Family Leave benefits.

– Prepare for employee payroll contributions

Update your payroll processes to collect the employee contributions that pay for this insurance.

It is strongly recommended you notify employees before withholding any contributions.

– Inform ineligible employees about waivers

Identify employees who will not meet the time-worked requirement for and offer them the option to waive coverage.

– Post an employee notice

Your insurance carrier will provide you with a notice to employees (Form PFL-120) stating that you have Paid Family Leave insurance.

Post and maintain this notice in plain view, similar to how the signage for workers’ compensation and disability insurance is displayed.

Attached you can find additional information:

 

As originally published on: https://www.ny.gov/new-york-state-paid-family-leave/paid-family-leave-information-employees

Final Republican Tax Bill – The Details

Corporate Income Tax

  • Flat tax rate of 21% effective January 1, 2018
  • 100% deduction for qualified property through 2022, then phased down over 5 years.
  • Interest expense deduction limited to 30% of adjusted taxable income if average receipts are greater than $25 Million
  • Alternative minimum tax would be repealed
  • The two-year carryback and 20-year carryforward periods would be eliminated, allowing the NOL to be carried forward indefinitely. The NOL deduction would be limited to 80% of the taxable income.

 

Business Income tax of Sale-Proprietors, S Corporation, & Partnerships

Deduction equal to 20% of their allocable share of business income

Limitations for S-Corp equal to the lesser of:

  1. 20% of allocable share of business income, or
  2. 50% of share of the W-2 wages of the S-Corp.

Limitations for Real Estate Partnerships equal to the lesser of:

  1. 20% of net income, or
  2. 25% of W-2 wages plus 2.5% of allocable share of the unadjusted basis of the building.

 

Individual Income Tax

Tax brackets would remain at 7, but the rates would be lower for most brackets including

Rate Single Married filing jointly
10% Up to $9,525 Up to $19,050
12% $9,525–$38.7K $19,050–$77.4K
22% $38.7K–$82.5K $77.4K–$165K
24% $82.5K–$157.5K $165K–$315K
32% $157.5K–$200K $315K–$400K
35% $200K–$500K $400K–$600K
37% Over $500K Over $600K

 

Standard deduction increases to $12,000 for individuals, $18,000 for head of household and $24,000 for married couples filing jointly.

Personal exemptions will be eliminated.

State and local Tax deduction can be combined with property taxes to reach and not to exceed a total amount of $10,000.

Mortgage Interest can be deducted on the interest paid on the first $750,000 of mortgage debt for a first and second home. No home line of equity can be deducted.

Medical expenses above 7.5 percent of a taxpayer’s adjusted gross income can be deducted for 2017 and 2018; 10% thereafter.

Charitable Contributions still allowed

Other miscellaneous itemized deductions Eliminated

Student Loan Interest can continue to be deducted up to $2,500.

Alimony for divorce or separation instruments executed after December 31, 2018, will no longer be deductible by the payer, nor will it be includible in income of the payee.

Trump’s Tax Reform Plan, or not….

A few highlights of what is supposed to happen in the next month or so, and a crucial caveat: nothing is written in stone…. so, stay tuned.

In the past month, both the House Ways and Means Committee (“House”) and Senate Finance Committee (“Senate”) have proposed a tax legislative bill to revamp the current US tax code.  The House released its proposal on November 2; the proposal was passed in the House of Representatives after a vote on November 16.  The Senate released its proposal on November 10 and is scheduled to pass the bill to a full vote of the senate after returning from the Thanksgiving holiday.

We have received many requests to determine the impact of the proposed bills.  Both bills are complexed with a variety of changes for corporations, pass-through entities and individuals’ taxation.

Changes will affect deductions, repeal of the estate tax, repeal of the individual and corporate alternative minimum tax, and a shift to a territorial system for foreign-sourced income.

Below are selected highlights for both proposals related to corporate and individual income tax:

House Bill

Senate Bill

Corporate Income Tax

Flat tax rate of 20% effective
January 1, 2018.

Flat tax rate of 20% effective
January 1, 2019.

100% deduction for qualified
property placed into service for 5 years.

100% deduction for qualified
property placed into service for 5 years.

Alternative minimum tax would
be repealed.

Alternative minimum tax would
be repealed.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

Individual Income Tax

Tax brackets would be
reduced from seven to four.

Tax brackets would remain at 7, but the rates would be lower for most
brackets including

Rate

Single

Married filing jointly

Rate

Single

Married filing jointly

12%

Up to $45K

Up to $90K

10%

Up to $9,525

Up to $19,050

25%

$45K–$200K

$90K–$260K

12%

$9,525–$38.7K

$19,050–$77.4K

35%

$200K–$500K

$260K–$1M

22%

$38.7K–$70K

$77.4K–$140K

39.6%

Over $500K

Over $1M

24%

$70K–$160K

$140K–$320K

 

 

 

32%

$160K–$200K

$320K–$400K

 

 

 

35%

$200K–$500K

$400K–$1M

 

 

 

38.5%

Over $500K

Over $1M

Standard deduction increases to $12,200
for individuals, $18,300 for head of household and $24,400 for married
couples filing jointly

Standard deduction increases to $12,000
for individuals, $18,000 for head of household and $24,000 for married
couples filing jointly

Personal exemptions will be eliminated.

Personal exemptions will be eliminated.

State and Local Tax deduction will
be eliminated, with the exception of property taxes that can be deducted up
to $10,000.

State and Local Tax deduction will
be eliminated completely.

Mortgage Interest can be deducted on the
interest paid on the first $500,000 of mortgage debt.

Mortgage Interest can be deducted on the
interest paid on the first $1,000,000 of mortgage debt.

Medical Expense deduction will be eliminated.

Medical expenses above 10 percent of a
taxpayer’s adjusted gross income can be deducted.

Student Loan Interest deduction will be
eliminated.

Student Loan Interest can continue to be
deducted up to $2,500.

These proposals are not final and at this time it cannot be determined when or if either proposal will be passed. As noted above, there are key differences between the two bills that need to be resolved.  The bill can only be passed into law once both the house and senate pass identical bills.

Under Banks’ Microscope: How KYC (Know Your Customer) bank compliance is going to affect you

Banks have been required to enforce their Final Customer Due Diligence Rule and will “look through” both individual and nominal legal entity account holders to clearly identify them.

Did you receive a KYC (Know your Customer) Form from your bank? Here’s what you have to know:

KYC Policies enable banks to know their clients and comply with The FinCen guidelines with respect to the U.S. Bank Secrecy Act/Anti Money Laundering (AML) regulations.

Under these regulations every financial institution has to obtain beneficial ownership and control information when an account is being opened. AML Compliance includes analyzing the account relationship, develop a customer risk profile and conduct ongoing monitoring to identify and report suspicious transactions.

If you are an individual you will be asked to submit copies of your ID or passport, form W9 or W8Ben, and documents proving your current address.

If you are a legal entity you will be asked to verify the legal status of the entity, the identity of the authorized signatories and the identity of the beneficial owner/s, and/or controllers of the account and the chain of ownership of the entity.

If you refuse or delay your answer, the Bank is entitled to refuse to open new accounts or discontinue its relationship with you.

Any questions or concerns?  Please contact us, we at GC Consultants, Inc. are here to help you and clarify all your doubts.

Foreign Investment in Real Property Tax Act (FIRPTA) – What You Should Know

FIRPTA - Foreign Investment in Real Property Tax Act

Foreign Investment in Real Property Tax Act (FIRPTA) – What You Should Know

The Foreign Investment in Real Property Tax Act, also known as FIRPTA, is a tax act that has been around since the 1980’s. This act is designed for the government to protect property interests in the United States, therefore regulating foreign investments in US property.

The act is designed to regulate foreign investments in US Real Property Interests (USRPI). We first need to know what US Property is. The IRS explains USRPI as interests that a taxpayer has in real property located in the United States or in the US Virgin Islands as well as certain personal property that is associated with the use of the real property. The term interests includes having shares in a domestic corporation which hold any USRPIs unless the corporation was not a US real property holding company (USRPHC).

The second point to keep in mind is that the act regulates foreign investments on USRPIs defined above. This means that FIRPTA withholding applies to foreign taxpayers (sellers) who dispose of US Real Property Interests (USRPI). Taxpayers who purchase USRPI from foreign taxpayers are required to withhold, starting from February 17, 2016, 15% of the gross proceeds (amount realized) on the disposition. This means that the rate of withholding is applied to the cash being paid, the fair market value of any other property being transferred, and the amount of any liability assumed by the purchaser or which the property is subject to immediately before or after the transfer.

Depending on the type of ownership of a USRPI, different withholding regulations might apply and therefore not limited to the 15% withholding on gross proceeds. The following are some examples of ownership types and withholding requirements:

1) Jointly owned properties, by U.S. and foreign persons, will have the amount realized allocated depending on the capital contributions of each.
2) Foreign corporations will withhold 35% of the gain it recognized on its distribution to shareholders.
3) Domestic Corporations will withhold tax on the fair market value of the property distributed if the corporation is a USRPI and the property distributed is either in the redemption of stock or in a liquidation.

Even though there are various regulations concerning FIRPTA, when it comes to withholding and ownership structures, it is important to realize that withholding taxes on the amount realized is a heavy burden for any foreign taxpayer attempting to sell. This is the case since the taxpayer would have to wait to file a tax return to claim a refund for excess withholding. There are various possibilities to be able to avoid this withholding which includes, but are not limited to:

1) Acquiring a residence that is less than $300,000 where you or a family member live in the residence for 50% of the time in two years broken down into two 12 month segments.
2) If you are disposing your interests in a corporation and that corporation certifies it is not a USRPI where the corporation was not a USRPCH in the last 5 years or it is not considered a USRPI by law.
3) You receive a withholding certificate from the Internal Revenue Service.

Method number three is one of the most frequently used ways to reduce or avoid the FIRPTA withholding. The reasons where this withholding certificate might be issued is if the IRS determines that the amount withheld if greater than the tax liability the seller will incur, the seller is exempt from US tax of all of the gain realized or an agreement with the IRS where security for the tax liability is provided by either the transferee or the transferor. It is important to make sure that a complete application, Form 8288-B, is made before or on the date of the transfer, otherwise, the application would be rejected. Within 90 days of filing, the IRS will then issue the withholding certificate.

Once the seller has applied for the withholding certificate, the IRS will delay the collection and reporting of the tax, under Form 8288-A, by 20 days starting from the date on which it has issued the withholding certificate whether it is approved or denied. Please note that to avoid any penalties or interests, even though you have applied for the withholding certificate, the full amount of the withholding tax has to be held in an escrow account until the certificate is received. The advantage of this is that the seller will receive the money as soon as the certificate, instead of waiting to file a tax return. The buyer will also be certain that he will not incur any future tax liabilities or penalties.

Selling or buying real estate can be quite risky and confusing unless proper guidance is received by your real estate agent, attorney, and CPA. We are available to help you plan your real estate transactions so that you can comply with IRS regulations and reduce your tax risk. Please call us for more details.

Implications of State Transactions & Nexus

00000000-1-A-S-Dion5One of the main goals for a taxpayer is to increase his revenue. Two of the main areas, for a business to achieve this, are to expand its customer base into various states and to provide customer service. This could mean that the taxpayer might perform various kinds of transactions to expand the business’ influence in a state.

Depending on the kind of transactions, and the situation that the business finds itself in, nexus might be created. Nexus means that a taxpayer has filing obligations with a state whether for purposes of paying sales tax, filing state income tax returns, filing tangible personal property tax returns & other similar filing requirements.

There are many types of situations where a business could find itself having nexus with a state and most of it is concerning whether the taxpayer has economic substance with that state. Economic substance means that a business is essentially using the resources and infrastructure, of a state, to expand their business, for example using the state’s roads, properties, etc.

Certain transactions, that could create economic substance, are holding inventory in a warehouse, hiring employees to work, hiring independent contractors to work in a state, sending an employee to repair items in a state and many others. We always urge taxpayers to consider nexus implications for any new type of transaction which they are not familiar with and to test, on an ongoing basis, whether they have a nexus within the state.

Our firm is here to help you in making these kinds of considerations and would gladly consult with you on possible taxable effects and filing requirements that you might incur from having a nexus within a state.

Like-Kind Exchanges: Defer Part (Or All) Of Your Gains From Investments Sales

Have you been looking to sell your investments? Are you aware that you could defer part, or all, of the gain by exchanging your investment with a similar one?

Like-Kind Exchanges

Like-Kind Exchange

The Internal Revenue Service (IRS) provides a benefit, known as Section 1031 – Like-kind Exchanges, for taxpayers that reinvest proceeds from selling certain kinds of investment property:

By exchanging your real property or personal property -used in either a trade or business- with a similar asset, you will be able to defer the gain from the exchange.

It is important to understand that not all property qualifies for like-kind exchanges and that, depending on the type of transaction, you might have to pay taxes, as some gains will not be deferred. There are also very stringent deadlines that the IRS imposes in order to qualify for this benefit.

Usually, due to the strict time frame and the complexity of the transaction, the IRS requires the taxpayers to select a qualified intermediary acting on their behalf throughout the process. The reason is to avoid premature cash exchanges and to complete all of the necessary documentation to avoid the transaction from being disqualified.

Please contact us for further details or advice on this matter or other tax issues you might have. It is important to realize that every transaction is unique and might expose the taxpayer to varying tax consequences.

Photo credit: andrew c mace via Visualhunt / CC BY-NC-SA