Monthly Archives: August 2015
Businesses today, including accounting firms, benefit greatly from both wire transfers and ACH payment processing. Each offers unique benefits for specific situations worth considering. In order to decide which electronic payment method to choose and when, it’s necessary to look at the definitions and distinctions of each.
ACH Payment Processing
Processing payments through an automated clearing house (ACH) means that you’re using an electronic network that works with several financial institutions in order to process transactions in groups or batches. The result is similar to a wire-transfer in that the money is shifted from one financial institution to another.
However, it’s not a real-time transaction the way a wire transfer is. The good news is that batch transactions usually show up within three of four business days. In some cases, they show up the next day.
This is far better than the traditional method of invoicing and waiting 30 to 60 days for the money to arrive (and then waiting the additional time required for the check to clear after depositing it into your bank account). In this way, the ACH payment processing provides accounting firms with a secure way to capture payments faster than the old fashioned way.
There’s also the versatility factor with ACH payments. ACH payments work well for online bill payments, payroll direct deposits, person to person (P2P) payments, and more. Some individuals even receive social security benefits and federal income tax refunds through ACH.
While some banks or financial institutions may charge a small fee for ACH payment processing, most banks offer this service free of charge. There’s a tradeoff though: While ACH payment processing may be inexpensive, it is not immediate.
Wire transfers still play an important role in today’s electronic banking world. Wire transfers are instantaneous transfers — within seconds in some cases — of money from one bank account to the next.
Accounting firms, in particular, benefit greatly from wire transfers on occasion as they are ideally suited to facilitate the instant transfer of funds from the business bank account, for instance, to a payroll processing center, if needed.
Further, wire transfers that occur between bank accounts are authenticated. This means the identity of the person on the receiving end is verified so that you’re certain the money is going to the person you intend to receive it. This reduces the chance of fraud in the transfer process and makes the transfer more secure.
On the downside, there is typically a fee involved in wire transfers. In some cases, the fees are substantial. This is often the deal breaker for those sitting on the fence in the debate between wire transfers and ACH payment processing.
That said, keep this in mind as you make your payment processing decisions. Sometimes, it’s worth paying the fee for the convenience and speed of the transfer.
The Bottom Line
When it comes to transferring money from one account to another, there is no clear winner. Different accounting business needs at different points in the business cycle make one or the other more appealing. The key is to make sure you’re matching the right needs at the right time to maximize ACH payment processing and wire transfers to their fullest benefit.
If you are like most entrepreneurs, the last thing you are thinking about is how to exit your business. You are more concerned about growth, expansion and sometimes just making ends meet. Well, the truth is, all successful business people have a clear exit strategy as part of their overall business plan. Just what is an exit strategy? An exit strategy is a plan on how you and your partners will leave the business. This leaving can be the sale of the business, an IPO, or transferring ownership to your heirs. Whatever your exit plan, building the business with this final goal in mind, will make things much easier when the time finally comes. If you are still not convinced of the necessity of an exit strategy, here are 7 reasons your business needs one.
1. Allows for retirement
An exit strategy allows for the business owner to retire comfortably. If you’re like most owners, most of your net worth is tied up in your business. Having a clear cut exit strategy will enable you to turn this net worth into cash permitting a comfortable and worry free retirement.
2. Provides for the future
If you are operating a successful business, its important that the business can carry on without you. Your employees and family depend on the business thus having an exit strategy planned can allow your business to continue to provide for your family and loyal employees.
3. Cashing out to invest
Even if you are not ready to retire, many entrepreneurs have the goal of starting other businesses or becoming a venture capitalist to help other business people with good ideas but limited funds. An exit strategy can provide the liquidity you need to obtain these goals.
4. Be appealing to investors
If you are seeking outside investment for your business, having a clear exit strategy is a must. Investors want to know how they are going to make money. An exit strategy will put this in black and white so that potential investors can see how you plan to earn them a return.
5. When to quit
Finally, an exit strategy creates a time frame for when to throw in the towel. It’s important not to keep throwing good money after bad in business ventures that simply are not working. Going into the business with an exit strategy will provide guidelines on how to end the business, regardless of its success.
If you are searching for outside guidance on your business, call 212-631-0320 and ask for Mark. Our initial consultation is free for business owners seeking to hire an accountant.
For one reason or another, thousands of American citizens are living outside the United States at any given time. Many retirees are taking advantage of the lower cost of living and temperate climate offered south of the border while younger individuals and families are abroad for school, business, or simply for the adventure. While living abroad certainly has its advantages, there are also disadvantages. Living abroad has always come with challenges. Learning a new language, adapting to a new culture, and adjusting to a different pace of life have always been among those challenges. Recently, Americans living abroad have faced a new challenge. This one, however, does not come from their adopted country but from their homeland. With the passage of the Foreign Account Tax Compliance Act, or FATCA, many expatriates are worried about the penalties they face from the Internal Revenue Service for failing to comply with complex provisions of FATCA.
Wealthy Americans have historically taken advantage of foreign tax havens. Everyone knows what a “Swiss bank account” means. Several countries in Central America as well as the Caribbean have also been popular options for off-shore accounts. Because these countries have traditionally maintained a policy of confidentiality with regard to the identity of account holders, wealthy Americans have been able to hide large sums of money in these offshore accounts and allow the funds to earn interest tax-free. As a result, experts estimate that the U.S. government loses as much as $100 billion dollars each year in revenue. FATCA was passed in 2010 in an attempt to tighten up the reporting requirements for foreign financial accounts which will, in turn, result in a dramatic increase in tax revenue for the U.S. government each year. Unfortunately, FATCA applies to everyone living outside the United States and/or everyone who has a financial account located outside the U.S., and the potential penalties for non-compliance are steep.
FACTA has two main provisions. The first requires foreign financial institutions to enter into an agreement with the IRS. The agreement obligates the financial institution to provide names, TINs, addresses, and transactional information regarding accounts held by U.S persons. The second provision requires most U.S. persons who have foreign accounts or certain types of assets to complete and file IRS Form 8938 “Statement of Specified Foreign Financial Assets” with their tax return each year. As a general rule, Form 8938 is only required if the value of the assets exceeds $50,000; however, there are exceptions to that general rule. In addition to Form 8938, financial accounts that total more than $10,000 must be disclosed using a “Foreign Bank Account Report”, or FBAR. To complicate matters, not only to account holders need to file a FBAR, but so do beneficiaries, signatories, and anyone with a power of attorney over the account.
Making a mistake on Form 8938 or failing to comply with the FATCA requirements for any other reason can incur a hefty penalty. The civil penalty for failing to disclose assets or accounts on Form 8938 can be as high as $10,000 plus an additional $10,000 for every 30 days of non-disclosure after the IRS officially provides notice of a failure to disclose. The maximum civil fine is $60,000 for a FATCA violation. The penalty for failing to file a FBAR is also up to $10,000 for a non-willful violation. For a willful violation, however, the penalty is the greater of $100,000 or 50 percent of account balances.
If you are an American living abroad and/or you own assets or financial accounts outside the United States you are likely subject to the provisions of FATCA. To ensure that you comply with all the FATCA requirements be sure to retain the assistance of an experienced accounting professional when you prepare your tax return this year and in subsequent years.
A number of decisions have to be made when a Last Will and Testament is created. The majority of those decisions relate to the disposition of estate assets; however, there are other decisions that must be made as well, including the appointment of an Executor. All too often, the appointment of an Executor is more of an afterthought and is done without giving the choice much thought. A better understanding of the numerous and varied duties and responsibilities of an Executor, however, should point out the importance of taking the time to choose the right person for the job. Among those duties and responsibilities are the following:
•Securing estate assets – immediately following the death of the decedent, the Executor must locate, secure, inventory, and value all assets in which the decedent had an ownership interest.
•Opening probate – documents must be prepared and filed, along with the original Will, with the appropriate probate court to open the probate of the decedent’s estate.
•Notifying creditors – creditors of the estate must be notified that probate has been started. Notice must also be published in a local newspaper for unknown creditors.
•Reviewing claims – creditors have a specific amount of time within which to file a claim against the estate. The Executor must review all claims and approve or deny the claim. Approved claims must then be paid out of estate assets.
•Defending the estate – if the Will is challenged, or a creditor whose claim was denied chooses to litigate the claim, the Executor must defend the estate throughout the subsequent litigation.
•Managing property –the Executor is responsible for managing estate property throughout the probate process. For real property, this may include everything from ensuring that taxes are paid to overseeing necessary repairs or maintenance.
•Selling property – sometimes, estate assets must be sold to pay creditor claims or to create the required division of assets as called for in the decedent’s Will. When assets must be sold, the Executor is responsible for overseeing the sale.
•Paying taxes – before probate can be concluded, all personal and estate taxes must be calculated and paid by the Executor out of estate assets.
•Transferring assets – finally, the Executor is responsible for ensuring that all documents necessary for the legal transfer of estate assets to the intended beneficiaries are prepared and filed, after which the assets are actually transferred to the new owners.
It should be clear at this point that the choice of Executor can ensure that the probate process moves along smoothly and efficiently or can cause probate to turn into a lengthy and costly affair which is why the choice should only be made after careful consideration and contemplation.
Mark Feinsot CPA services high net worth individuals throughout Midtown Manhattan. If you are searching for a CPA tax accountant who helps families identify the right relationships to retain what you’ve saved, simply call us at 212-631-7578 and ask for Mark.
If there is one sure thing about life in the U.S from a financial standpoint, it is this: taxes and profits go hand-in-hand. This includes the sale of a home. However, if you meet certain criteria, there are enough credits, exceptions, and exclusions to make the entire process surprisingly light on taxes. In fact, many homeowners are able to escape tax-free as long as certain conditions are met.
Any single person selling his or her primary residence can treat as much as $250,000 profit from the sale as tax free. That amount doubles for married couples who file jointly. You can use this exclusion every time you sell your primary residence provided that you lived in the property for at least two years and have not received the exclusion for the sale of another home within the two years prior to this sale.
Exceptions to the Rules
There are some instances where you can receive a partial exclusion on the profits from your home sale even if you haven’t lived in the home for the full two-year period.
If you have a change of employment that forces you to sell your home for financial reasons or the purpose of relocation, for instance, you may claim a portion of the funds. This is also true in the event of divorce, multiple births from a single pregnancy, and other factors.
If you have questions about maximizing your tax exclusions from the sale of a home, now, before the sale takes place, is the perfect time to consult us to get the answers you need.
With the growth in real estate values in New York City, the tax exclusion rules are restrictive. Proper planning can often help you avoid (or lighten) the tax implications.
Feinsot CPA is a New York City CPA Firm with two convenient office locations in Midtown. Call us at 212-631-0320 and ask for Mark if you are searching for a CPA Firm focused on minimizing your tax obligations legally.
Computer games are not just for kids anymore. With the advent of online gambling, some adults are now spending as much time “playing” on the computer as their children do. While some of these virtual casinos allow players to play with “pretend” money, there are a growing number of websites devoted to real world gambling. Unfortunately, there are also a number of myths and misconceptions about how a taxpayer should treat winnings from an online casino. For example, people often believe that as long as winnings are kept in a virtual account with the casino there is no need to report the winnings as income to the Internal Revenue Service, or IRS. Gambling winnings, however, are considered income and must be reported as such regardless of whether you elect to “cash out” or not.
Online casinos operate much like brick and mortar casinos in that a player begins by purchasing chips that are then used to bet at the various games. The goal, of course, is to accumulate chips by winning at the various games. In a real life casino a player will typically “cash out”, or convert chips back to cash, before leaving the casino. Players at an online casino usually have the option to cash out or leave the chips in their online account for the next time the player wishes to play. Either way, winnings are considered income and must be reported to the IRS.
The Internal Revenue Code Section 61(a) of the Internal Revenue Code defines gross income as “all income from whatever source derived,” a definition that clearly includes gambling winnings. If a player chooses to leave his or her winnings in an online account at a casino though, must those winnings be reported as income to the IRS? To determine when that income must be reported we have to dig a little deeper in to the Internal Revenue Code and review the concept of “constructive receipt of income.”
Sometimes, income is earned but the recipient has chosen not to access the funds yet, as is the case with gambling winnings left in an online account. When this is the case, the recipient is said to have “constructive receipt” of the income. This is different from a situation where income is earned but has not yet been paid. IRS Publication 334 provides a definition for the concept of constructive receipt of income that states as follows: “You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it.”
Using that definition it becomes clear that gambling winnings that remain in an account must still be reported as income on Line 21 of IRS Form 1040.
Once you have finally made the important decision to create an estate plan you certainly don’t want to make costly mistakes during the creation of the plan. Before you get started on your plan, consider the following five biggest estate mistakes to avoid:
1. Failing to plan for incapacity. Estate planning should not only contemplate your death but should also contemplate the very real possibility of your incapacity. In the absence of an incapacity plan your loved ones could waste a significant amount of time and money in a protracted legal battle over who will control your estate assets and who will make personal decisions concerning you and your medical treatment.
2. Not avoiding probate. Probate can take months, even years, to complete. Meanwhile, much needed assets are unavailable to the intended beneficiary. Converting assets to non-probate assets will save your loved ones both time and money and provide estate liquidity.
3. Failing to understand the tax implications of your plan. The transfer of wealth has tax implications, including federal gift and estate taxes. Failing to understand and plan for the tax implications of your death could end up significantly diminishing the value of the estate you leave behind for your loved ones.
4. Not leaving behind a funeral plan. Planning your own funeral and burial may not sound like fun but doing so will save your loved ones from making costly mistakes as well as ensure that your final wishes are honored. Ensuring that funds are available, or even pre-paying, for your funeral will also benefit your loved ones during their time of grief.
5. Failing to consult with an attorney. Estate planning is not the place to try and save money. The money you save now by going the “do-it-yourself” route will likely cost your loved ones considerably more after your death both in terms of dollars and cents and in terms of time spent litigating your estate.
Mark Feinsot, CPA has been providing estate planning services to high net worth families in New York City for years. If you’d like to discuss your situation, call 212-631-7578 and ask to speak with Mark. Our initial consultation is free.
The U.S. Small Business Administration said it reached the $18.75 billion cap for its main loan guarantee program on Thursday, forcing it to halt the funding of new loans with more than two months left in the fiscal year.
SBA spokesman Miguel Ayala said the capacity for fiscal 2015 was exceeded by stronger-than-anticipated demand for the government-guaranteed 7(a) program loans made by banks to small businesses.
As the agency neared the cap, lenders submitted a crush of $3 billion in loan applications already in July, including $1.7 billion this week alone. The July figure is more than five times the agency’s recent monthly volume, Ayala said.
The strong demand, which has been building all year, is a sign of an improved economy in which small firms want to expand and need capital, particularly in poorer communities, Ayala said.
The agency’s loan guarantee capacity would normally be reset under a new cap at the Oct. 1 start to the next fiscal year but a two-month halt in lending could slow job growth in the sector of the economy that creates the most net new jobs.
The AMT, also known as the alternative minimum tax, is one of the most hated taxes in the United States and for good reason. For those individuals above a certain threshold of taxable income, or corporations, trusts, and estates, the AMT creates a higher tax burden beyond that imposed on those that fall under the threshold.
The alternative minimum tax was first originated with the thought that those individuals and corporations in the higher tax bracket were able to find and utilize large tax breaks that the middle class could not. It was decided that the AMT would ensure that those with the highest incomes would pay a minimum tax rate regardless of the tax breaks and loopholes they may have available to them.
The current AMT was enacted in 1982 and is applied to all taxable income when an individual or entity’s taxable income falls above a pre-determined level. In 2013, that level was tied to inflation, or CPI rates.
As it stands now, the alternative minimum tax rates are 26 and 28%, and to determine whether or not you are subject to regular tax rates or the AMT rates, you would be required to calculate your taxes twice. This can become problematic as the AMT does not allow the same deductions as the regular tax does, so your adjusted income levels will be different.
The bottom line is you will be required to pay the higher of the two rates. It can become quite complicated to determine if you are subject to the AMT as well as what deductions are allowed and which are not. Often, the best course of action is to contact a qualified tax accountant to walk you through the process.
The AMT is hated for good reason. It’s complicated and some would say creates a separate class of citizens that is being penalized for their financial success.
Mark Feinsot, CPA is a New York City CPA Accounting firm with offices on West 57th Street (Midtown West near Central Park) and West 32nd Street (Broadway, near Empire State Building). Our firm works with all types of businesses and high net worth individuals. If you are searching for a new accountant who is focused on minimizing your taxes legally, call us at 212-631-8320 and ask for Mark.
A corporate inversion, simply put, is a method corporations use to reduce their tax responsibilities. While this loophole may present a sound tax solution for the corporation in question, it has a direct impact on tax revenue collected by the United States government, as well as on competition between companies.
A corporate inversion takes place when a U.S. corporation renounces it’s citizenship by merging with a smaller company in a foreign country. This country typically has a more favorable corporate tax structure as well as tax rules that allow the U.S. corporation to reduce its tax burden.
Once the corporation merges with the foreign entity, it declares the new country as its place of residency. At that point, the United States can no longer impose or collect taxes on the corporation for future or past income. While this may be a positive situation for the company, it does has a negative effect as it reduces tax revenue for the U.S. as well as creates an atmosphere of unbalanced competition between corporations that have transacted an inversion and those that have not.
Over the last decade, corporate migration has increased to the point that now only one-tenth of total tax revenues collected come from corporations. That’s down from one-third in the 1950s. In fact, in the past ten years, a total of 47 U.S. corporations have performed corporate inversions and changed their legal residences to countries outside of the United States.
While it stands to reason that a corporation should do all it can to reduce its tax burden, and it could even argue that doing so is its fiduciary responsibility to its shareholders, this particular tax loophole is stripping tax revenues from the U.S. government at an unsustainable rate.
In addition it is also pitting the corporations that have made an inversion against the corporations that have not creating a toxic business environment which is why this is one loophole that needs to be fixed.
Mark Feinsot, CPA is a New York City CPA Accounting firm with offices on West 57th Street (Garment District) and West 32nd Street (Broadway, near Empire State Building). Our firm works with all types of small businesses and high net worth individuals. If you are searching for a new accountant to minimize your tax obligations, call us at 212-631-8320 and ask for Mark.