Monthly Archives: September 2015
If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.
According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”
He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”
While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.
Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.
The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.
There are many challenges small companies face in today’s highly competitive world of business. As such, many businesses have taken actions to streamline operations, and have made the move to paperless offices and cloud computing in order to get an edge over competitors. Unfortunately, this has left them vulnerable to a risk of a different nature – a data breach.
Hackers are evolving at a more advanced pace than the software to stop them in their tracks is. They want information of any kind about your business, your employees, and the clients and customers who have trusted you with their personal and financial information.
Why Do You Need Data Breach Insurance?
For most of today’s small businesses it’s not a matter of IF a data breach will occur, but WHEN will it happen. That’s why you need to invest in adequate data breach insurance coverage for your small business.
In addition to the public relations nightmare data breaches bring to businesses, there are costs that can be quite significant. These include costs of legal defense, credit monitoring services, court fees, and even the expenses of notifying your customers that their information may have been compromised in the attack.
These costs can be particularly detrimental to your business if you’re paying for these costs completely out of pocket, without the help of insurance.
What Does Data Breach Insurance Cover?
The nature of data breaches is brutal for small businesses that are ill-equipped to defend against brute force attacks despite their best efforts. Data breach insurance helps small businesses in these events by covering the costs of:
- Litigation defense
- Forensic investigations
- Crisis management and public relations
- Notification expenses
- Liability expenses
It’s important for you to be proactive in your efforts to avoid the scandal associated with data breach by establishing strict policies about passwords, device usage, social media, etc. and to purchase adequate data breach insurance as a backup plan for the time when data breaches do occur.
You may have heard about credit monitoring, but may not be exactly sure what it entails or if it can protect you in there is a data breach or hack that allows your information to fall into the wrong hands.
How Can Credit Monitoring Help You?
Identity theft is one of the great big fears to come out of a data breach or hacking situation. This is where someone else halfway across the country, outside the country, or even in your same state assumes your credit persona and takes out credit in your name.
Unfortunately, these people rarely have the intention of paying for the things they purchase with the good credit you’ve worked so hard to build. This means you’re left holding the bag (or in this case, interest bearing bill) for their high dollar purchases.
Credit monitoring is a valuable tool that can help you become aware of fraudulent accounts that have been opened in your name, as well as loans that may have been taken out using your Social Security number.
Credit monitoring looks for these suspicious activities as they are happening. It notifies you immediately so that you can take action at the first sign of trouble, rather than only finding out after serious damage has been done to your reputation, credit rating, and, possibly, to your financial security.
What Does Credit Monitoring Involve?
Depending on the service you subscribe to, credit monitoring can include a wide range of features. These are some you might want to make sure are included in the credit monitoring services you choose to protect your identity from harm.
- Daily monitoring of credit reports.
- Daily scanning for unauthorized use of your Social Security Number.
- Protection for lost or stolen wallets.
- Nationwide alerts for change of address notifications in the event that someone changes your address.
Credit monitoring is a proactive step you can take to protect your financial interests from identity thieves. You should review your credit reports often in order to look for suspicious activities that might indicate identity theft. Report anything suspicious right away in order to reduce your risks and, in a worst case scenario, limit the scale of the damage.
Cost segregation is the process of identifying your assets and classifying those assets correctly for the purpose of paying federal taxes. In this process, personal assets that are mixed with real property assets are separated out, so all assets can be depreciated properly and potentially increase your bottom line.
Cost Segregation Studies
A cost segregation study is performed to determine which assets can be claimed as personal property instead of real property. These items usually include indirect construction costs, non-structural elements of buildings, and exterior land improvements.
By separating these assets, they can be depreciated over a shorter term which will reduce your current income tax liabilities and increase cash flow. This decreased depreciation period is typically between five and fifteen years instead of the twenty-seven and a half to thirty-nine years for non-residential real property.
For example, items such as carpeting, wall paper, parts of the electrical system, and even sidewalks and landscaping all qualify for the shorter depreciation periods.
Eligibility and Advantages of Cost Segregation
To be eligible for cost segregation, a building must have been purchased, remodeled, or constructed since 1987. This method of tax reduction is best used on new construction, but it can be used retroactively on older buildings as well.
Beyond the benefits of reduced tax liability and increased cash flow, a cost segregation study will provide your business with an audit trail of all costs and asset classifications. This will help put to rest any unwanted inquiry from the IRS in its early stages. Finally, during this process, you may identify possible ways to reduce your real estate tax liabilities as well.
While there are some costs associated with performing a cost segregation study, as long as the assets in question are valued over $200K, it’s worth the time and expense to complete the study and categorize these assets correctly.
Mark Feinsot CPA seeks to minimize your tax liability legally and cost segregation is just one tool to accomplish this task. If you are tired of overpaying taxes, call 212-631-0320 and ask for Mark.
Feinsot CPA services all types of businesses and high net worth individuals. For additional expertise, we have concentrations in high net worth accounting and tax, aviation, law firms and dental practices.