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How to Report Tax Loss to the IRS

Tue, 29 Jan 2019 18:04:00 GMT

The curb appeal of homes and businesses has been impacted by Hurricane Michael on October 10, 2018. Reporting the tax loss to the IRS is part of the financial recovery process that the taxpayer will need to do in the 2018 or maybe the 2017 income tax returns. The Tax Cuts and Jobs Act (TCJA) signed in 2018 does change how casualty losses are reported.

In general, the TCJA raises the bar for claiming a tax deduction for a personal casualty loss by mostly eliminating personal casualty loss deductions beginning in the tax year 2018. However, if the casualty loss is a federally declared disaster and your property is in the declared disaster zone, the taxpayer can make a special election to report the loss in the preceding tax year of the loss. The election has to be made no later than six months after the federal filing due date for the year of the disaster not including extensions. Individuals claiming a casualty loss for personal-use property report casualty losses as an itemized deduction on Form 1040, Schedule A. When to report the loss is dependent on the individual’s circumstances, including:

Different tax rules apply to the 2016-2017 tax years compared to 2018 and beyond. So, to determine the best result for the taxpayer, each circumstance should be considered. The best evaluation method is to input the loss numbers in each year’s tax return and calculate the result.

Losses Exceed Income (Net Operating Loss)

Once the loss is reported in the proper year to maximize the taxpayer’s benefit, a net loss may be the result. Individuals, just like businesses can have a net operating loss, especially with reporting casualty and disaster losses. The TCJA eliminates the carryback of NOL’s to a previous year. It does allow for a carryforward to future years without an expiration period.

Retirement Plan Used for Disaster Recovery

The IRS has made provisions to relax regulations relating to Retirement Plan Hardship Distributions. 401(k) plans and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of both Hurricane Michael and Hurricane Florence. And, members of their families may also be eligible. A person who lives outside the disaster area can take a loan or distribution for assistance to a son, daughter, parent, grandparent, or another dependent who lived or worked in the disaster area. The ‘relaxing regulations’ means that the taxpayer will be able to access their money in the retirement plan easier and faster. Although access to the retirement plan money is much easier, the tax treatment of loans and distributions remains unchanged. Loans are typically not taxable, but distributions are subject to a 10-percent early withdrawal tax.

Calculating the Loss

The taxpayer will need to compile records to support the amount of the loss deducted. The loss to be reported is the smaller of:

The adjusted basis of property is generally the purchase price and adjustments for events. Such as an increase due to improvements. The FMV is generally the value that the property can be sold. The FMV will have to be determined before the casualty and immediately after the casualty. Without an appraisal of the property to provide the decrease in the FMV caused by the casualty, the actual cost of the cleanup and repairs can be used to determine the amount of loss. This is a safe harbor method available for determining the casualty loss from a federally declared disaster. A safe harbor method is also available to help determine the casualty loss for personal belongings.

The calculated casualty loss figure will also need to be decreased by any insurance reimbursements that have been received or expected to be received. Insurance payments received to cover living expenses. But only when the use of the main home is lost does not reduce the casualty loss. If the insurance reimbursement is more than the adjusted basis in the property then a gain will be reported and may be subject to tax.

Hopefully, this explanation helps with the basics of reporting an individual personal property-casualty loss. Many resources can be found at IRS.gov to assist with questions. Also, you may want to consult your current CPA, or you can contact Reconciled .

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Meet the Bookkeeper: Petra Newara

Wed, 09 Jan 2019 08:23:00 GMT

If you were a business owner meeting Petra Newara for the first time, you’d want to ask her two things: where she last traveled (so she can give you insider tips for your next international vacation) and what common-sense changes you should be making in the financial management of your business. With an MBA in Economics, International Relationship and Diplomacy from the University of Economics in The Czech Republic and over a decade of experience providing in-house bookkeeping and accounting services to US companies, Petra approaches her clients with both a seasoned pragmatism and a passion for excellence.

Petra joined the Reconciled team in 2017. As a senior accountant, she handles the bookkeeping needs of some of our largest clients, those with the most complex bookkeeping and accounting systems. And her depth of experience allows her to provide an advisory function to those clients as well.

Working in a bookkeeping firm rather than embedded within a company isn’t always easy for someone who values precision as much as Petra does. In her previous roles as an employee of an individual company, she had unlimited access to all the information she could want — working day in and day out with the same business team.

Now, operating on what Petra calls “the outside of the circle,” there are limits to the information to which she has ready access. That limitation can be challenging. “I sound like a control freak,” she says, laughing. But Petra sees the benefits of working with multiple clients — both for her and for the businesses she helps. Less control also means greater flexibility to think outside the box and the opportunity to use lessons learned from one client to help improve outcomes for another client.

Petra also enjoys the constant learning that comes from working with clients that are “ever-changing, evolving, and growing.” Her only option is to grow alongside them, and she genuinely enjoys it. With a healthy dose of pragmatism and common sense, Petra works to give her clients the big picture — enough information to help them make informed decisions but not so detailed and complex that they get mired in the bookkeeping details they were trying to handoff in the first place.

In the midst of all that heavy brainwork, Petra stays active. “Because of the intensity of the tasks,” says Petra, “I have to work in chunks.” In between, she moves — biking, running, yoga, ballet. Working remotely allows her to create a schedule that accommodates that kind of active lifestyle and to travel extensively while still keeping up with her client’s needs. With most of her family back in Europe, Petra, her husband, and their two girls spend a month each summer in Prague.

Interested in her current travel recommendation? Petra was recently in Venice and got to see the Miramare Castle, built in the mid-1800s for Austrian royalty. “I grew up with history and cobblestones and gorgeous architecture everywhere. I was still wowed by it.”

The post Meet the Bookkeeper: Petra Newara appeared first on Reconciled .

Five Ways the New Tax Code Will Affect Your Small Business

Fri, 04 Jan 2019 19:41:00 GMT

It’s 2019! And with the start of the New Year, comes a new tax season!

With the newly enacted Tax Cuts and Jobs Act (TCJA), nearly every business’s bottom line will be affected differently. The differences are from previous years with the changes to the tax code.

1. Deductions

New provisions and hefty changes define this section of the new tax code.

Depending on the income and type of business, you may now be able to deduct up to 20% of qualified business income.

There’s also a change in limits of deductions for meals and entertainment. You can continue to deduct 50 percent of a business meal, but with stricter requirements. Entertainment must be billed separately from food or drinks. The entertainment expense deduction is eliminated.

2. Depreciation

From now until 2023, TCJA allows 100 percent bonus depreciation for qualified property acquired and placed in service after 9/27/17 and before 1/1/2023. Section 179 election for depreciable business assets increased to the maximum deduction of $1 million. The phase-out threshold is now at $2.5 million.

3. Changes to fringe benefits

TCJA has prohibited cash, gift cards, and other non-tangible personal property as an employee achievement award. But it is awarding employers that offer paid family and medical leave credit. The qualified bicycle commuting reimbursement is included in gross income and wages for commuting reimbursements. Moving expense reimbursement are also to be included in employees’ wages.

4. Business structure and accounting methods

In the past, if your business had an average annual gross receipt of $5 million or less, you could use the cash method of accounting. Now, the TCJA has expanded this to $25 million.

5. Opportunities for investments

The TCJA offered benefits to investors in specific opportunity zones as well as a 20 percent credit for rehabilitating certified historic structures.

The new tax code can be a bit confusing for those outside of the accounting industry. With help from an experienced accountant, you might find that your business will greatly benefit from these new laws. Reconciled can help you get your business’s finances in order for tax season. We can also help ensure you’re compliant with the new laws.

For more information on the new tax laws, visit https://www.irs.gov or contact us today!

The post Five Ways the New Tax Code Will Affect Your Small Business appeared first on Reconciled .

From the CEO: Learning To Do Less

Wed, 19 Dec 2018 08:00:00 GMT

The concept that you could realize huge success by learning to do less is fairly pervasive and awfully seductive.

In fact, I seduced you into reading this article by using that concept in the title. We all want to believe there’s a magic trick that would allow us to achieve the things we want while spending more time watching movies or going for long hikes with friends – you know, learning to do less work.

It’s not that you can’t ever do those things, but the truth is that no entrepreneur or business owner succeeds by learning to do less overall. What does lead to great success?

Doing less of the things that don’t meet your true value and doing more of the things that do.

For the owner of a business, entering numbers into a spreadsheet or updating social media channels are rarely activities that meet your true value. So how do you orient your day and your business so that you’re spending more time on the big picture projects and strategies that will lead to growth and learning to do less with the day-to-day activities that keep your business going?

Delegate where you can

Because the day-to-day activities of your business have to keep happening, the only way for you to learn to do less of them is for someone else to do more of them, aka delegating.

Passing along a task to someone else gets it off your plate, but you could actually experience a bigger benefit. An employee or contractor who excels at the tasks that aren’t your core strengths can often see improvements where you can’t. They’re operating in their prime skill zone whereas you were simply doing a thing that needed to get done.

That’s exactly what Reconciled does for our clients. We encourage them to let go of the accounting and bookkeeping tasks (our core strength) so that they can spend their time and energy focusing on their core strength, whether that’s developing a new beer recipe or perfecting their latest app.

Create systems

As an accountant, you’re probably already a pro at systematizing. After all, part of your job is identifying items or processes that are repeatable and can be documented.

But if you haven’t created systems, you’ll need to make space in your schedule to define the processes that make up the role or tasks you’re planning to delegate. Depending on the skillset of the person you hire to take over the task, you may be able to rely on them to create systems for you.

Unfortunately, I find that a lot of business owners have trouble trusting that someone else can do it better than they can.

I tend to assume that, if given the responsibility, most people will try their best and that any potential failure serves as a useful learning experience. But my approach doesn’t feel comfortable for everyone, and that’s where systems can be really helpful.

You can mitigate the risk of failure by thoroughly documenting your processes. If you have a well-documented process, you’re less dependent on an individual’s particular competencies. As long as they can read or use a computer, they should be able to follow the process you’ve created.

Plan for your time

Often when business owners delegate a task, they fail to take a really important pre-delegation step. They don’t set goals or create a plan for how they’ll use that newly available time.

If you wait until you have free time to decide what you’re going to do with it, you’ll just end up filling it with the most urgent thing that needs to be done at that moment. And chances are, that urgent thing doesn’t meet your true value.

Besides, setting a goal will help motivate you to take the steps necessary to delegate.

Use technology to automate

Delegating a task doesn’t always require another person. Sometimes technology can provide the automation that saves you time and avoids spending your mental energy on things that don’t really need your attention.

For instance, at Reconciled we started using an app called Zapier that allows you to configure a sequence of actions based on an initial triggering event. Whenever a new Reconciled customer signs a contract, Zapier automatically creates an internal Slack channel for that client and sends an email to the customer and the bookkeepers involved as well as to our sales team to begin the onboarding process.

Without that automation, someone would have to monitor that process for every new client to make sure things were progressing appropriately.

While all of these steps will help free up your time to focus on the big picture actions that will grow your business, they’ll also help your business and your employees perform better day-to-day. And they’ll make hiring and training new staff easier and more efficient since everything they need to know will be captured in documented systems rather than in someone else’s head.

Doing less probably won’t move your business forward. But learning to do less of the stuff that doesn’t meet your core strengths and more of the stuff that does? That will set you on the path to success.

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