Month: March 2017

Is Your Accountant More than Your Trusted Advisor?

Is Your Accountant More than Your Trusted Advisor?Managing partner Maria Rollins was a guest on the Accounting Success podcast, speaking on the topic, “How Successful Accountants Serve Their Clients.” In this session excerpt, host Ian Welham and Maria discuss what it means as a CPA to be more than a trusted advisor.

IAN: It’s sometimes said that owning a business can be a lonely world and even that clients can go into their own shell or into their own world. Do you find that once you’ve got a relationship with a client that they tend to reach out to you to help them understand their business, help them avoid that feeling of loneliness…?

MARIA: Sometimes we refer to ourselves as more than just the trusted advisors. Sometimes we’re the psychologist that steps in and listens to what our clients’ issues are even if it goes beyond their business or accounting. I think it’s the fact that our clients know that we really do care about the success of their business, so we can listen to their troubles and their stresses and provide that third-party advice, that independent advice, to help them succeed.

IAN: I think that’s very important. I think you used the word “help them succeed.” Do you find that some clients aren’t actually clear about where they want to go? They got into business. They’ve grown, perhaps, over 10 or 15 years, but they don’t have an end game.

MARIA: We do talk a lot about succession planning for their business. We do talk about buy/sell agreements… We do try to sit down and understand what the goals are. We talk a lot about a three-year plan and a five-year plan so we can help them, guide them. Their business is their biggest asset most times. You want to add value within that asset.

IAN: You have clients not just from New Jersey, but across the U.S. and from around the world. They’re quite diverse in terms of size, ranging from multinational corporations to small, independent businesses. What do you actually look for in a client? What are the things that attract you to the client?

MARIA: The biggest attraction is what we can do to help that client. Where can we actually see some success with what that client needs and how we can match up our talent to get them to that next level and to help them achieve their goals. We do talk a lot about what the client needs are, our understanding of those needs, and how we can help them achieve those goals.

IAN: I think it helps, of course, whether the client’s large or small, that they welcome outside expertise and understand this value.

MARIA: There’s clients that could be a little bit larger that have very different needs. Maybe those clients are more in the need of the traditional accounting services where we’re providing audit assistance or a financial statement assistance. We’ve found very small businesses, and we don’t want to pigeonhole any business based on size, but very small businesses that are very entrepreneurial, they have a very high need and use of technology, and it’s exciting to be part of that growth.

IAN: I noted another expression on your website that caught my attention. I think it was echoed in some of your clients’ testimonials as well. The phrase is: “We’ve got your back.” Can you explain what you mean by that? How does that phrase embody how you serve your clients?

MARIA: The culture here is that we care about our clients’ businesses, sometimes even more than our clients seem to care about their businesses. That’s really where that comes from. You’re focused on your business. You’re in it day-to-day. Sometimes it’s very hard to step back and look at the big picture. We’re there. We’ve got you. We have that big picture in mind. You can count on us for that.

Listen to the entire discussion on YouTube at https://youtu.be/ox6UNUzreXk.

Using a Self-Directed IRA to Buy Real Estate

The real estate market is an attractive option for investors who desire alternative or non-traded assets in their portfolio. Additionally, paltry returns on money market and similar savings vehicles have motivated individuals to seek non-traditional methods to save for retirement. One option that has grown in popularity is utilizing a self-directed IRA to purchase real estate.

Using a Self-Direct IRA to Buy Real EstateWhat is a Self-Directed IRA?

A Self-Directed Individual Retirement Account (“SDIRA”) is an IRA that requires the account owner to make investment decisions and invest on behalf of the retirement account. IRS regulations require a qualified trustee, or custodian to hold the IRA assets on behalf of the IRA owner.

Although the statistics are not formally tracked, the Securities and Exchange Commission estimated that approximately 2 percent of all IRAs are self-directed, which equates to more than $100 billion (in real estate and other investment vehicles).

Prohibited Transactions

There is a wide selection of options in which a self-directed IRA to invest. However, the Internal Revenue Code does not allow certain investments. For example a self-directed IRA is prohibited from investing in S Corporations, life insurance contracts and collectibles.

IRAs are also precluded from “prohibited transactions,” which include “self-dealing” transactions. This restriction was established to prevent an IRA owner from using the IRA funds for his or her own personal benefit instead of the IRA. An example of a prohibited transaction is selling property you currently own to your IRA.

If the rules are violated, the entire IRA could lose its tax-deferred status.

Real estate investments

When purchasing real estate with a SDIRA, generally all income and gains generated by your IRA account would flow back into the retirement account tax-free. Instead of paying tax on the returns of a real estate investment, tax is paid at a later date (IRA withdrawals/distributions), allowing the real estate investment to grow.

Real estate related investments that are available to a SDIRA include:

  • raw land
  • residential homes
  • commercial property
  • apartments
  • real estate notes
  • tax liens
  • tax deeds

Tax benefits lost and liabilities gained

Investing in real estate through an IRA instead of individually may cause an investor to lose tax benefits. For example, if you sold appreciated property outside of an IRA, the profit is subject to a capital gains tax (currently at a preferential rate). However, the profit from real estate sold inside an IRA is ultimately taxed at the time of withdrawal at ordinary income tax rates, which will likely be higher than the capital gains rate.

A SDIRA that invests in real estate may incur additional tax liabilities. If an IRA purchased a property subject to a mortgage, it may be subject to unrelated business income tax (UBTI) on a percentage of the rental payments. For example, if you make a 25% down payment on a rental property, then 75% of your rental income is subject to the tax.

Owning real estate in an IRA allows your investment to grow on a tax-deferred basis. However, if you do not follow the rules, you could disqualify your IRA and create a taxable event. It is important to consult with your tax and financial advisors before directing IRA funds into a non-traditional investment.

We’ve got your back

If you have questions about setting up an SDIRA or its tax implications, we’re here to help. Contact Simon Filip at [email protected] or 201.655.7411.

Trade-in or sell your vehicle?

The decision to trade in or sell your vehicle is not so easy if you’ve used that vehicle for business.

Tax implications of trading or selling your vehicleSelling a vehicle outright or trading it in towards a new vehicle usually involves analyzing the economics of the transaction. However, tax factors can start to complicate things if that vehicle was used in your business.

Generally, a gain or loss on the sale of a business asset is determined by the difference between the sales price and basis (your cost for tax purposes). Basis is typically your original cost less depreciation deductions claimed for the asset over the years.

Under the tax-free swap rules, trading an old business asset for a new, like-kind asset doesn’t result in a current gain or loss. The basis in the new asset will be the remaining basis in the old asset plus any cash paid on the deal.

So if your car was used exclusively in business and depreciated down to a zero, or very low basis, trading in the car can avoid current tax. Here is an example:

Mary originally purchased her car for $35,000. The car is used exclusively for business and Mary has deducted depreciation of $33,000 over the years. Mary’s remaining basis is $2,000. Mary has an offer to sell her car for $7,000. If Mary accepts the offer she will have a taxable gain of $5,000. If, however, Mary decides to accept a trade-in of $7,000 for the car she will not recognize any gain. The basis in the new car will be Mary’s basis in the original car ($2,000) plus any cash she paid to trade-up.

Alternately, you would choose to sell the car if the depreciation was limited by annual depreciation dollar caps. In this situation, your basis in the old car may exceed its value. If you sell the car you will recognize a tax loss. If you trade the car in, you would not recognize the loss under the tax free swap rules.

What if you used the standard mileage allowance to deduct car-related expenses?

The standard mileage allowance has a built-in allowance for depreciation, which must be reflected in the basis of the car. For 2016, the deemed depreciation is 24¢ for every business mile traveled. This method may leave you with a higher basis when the car is sold. Therefore, the car should be sold rather than used as a trade-in to recognize the tax loss.

We’ve got your back

At KRS we assist our individual and business clients with all matters related to taxes. If you’re faced with trading in or selling your vehicle, and aren’t quite sure what to do, contact managing partner Maria Rollins at 201.655.7411 or [email protected]