Blogs - PWB

Best Practices for Filing Your Post-Disaster Insurance Claim

June 10, 2019 By PWB CPAs

By Jeff Johnston, CPA/ABV/CFF, JD, LLM

Organizations that experience disaster—such as a fire, explosion, storm damage, flood or recall—will almost certainly face sustained damage and, needless to say, crippling losses. Although property may be destroyed and operations may cease, the organization’s expenses rarely cease. At the very least, there are employees to pay and recovery efforts to fund. Filing a timely, accurate insurance claim is critical to securing the cash needed to keep the organization afloat.

To help you avoid a cash-flow crisis in this situation, here are four best practices for filing your insurance claim.

1. Call your insurance broker ASAP.
Let your insurance broker know about your situation as soon as you can. Depending on the nature and extent of the disaster, this should be one of the first calls you make.

2. Review your insurance policy with your broker.
It’s important to determine if you have coverage and the type of coverage you have right away. This will help you identify which losses and recovery-related costs you can include in your insurance claim. Losses resulting from property damage are, in most cases, fairly straightforward; however, losses caused by an operations interruption may not be so black and white. These types of losses could continue to accrue until your organization is fully recovered.

For example, say you own a manufacturing business. A tornado touches down during a violent thunderstorm, leaving your plant with a collapsed roof. You hire a contractor to repair the roof. You’ll get an invoice for the roof repair and include it in your claim. During the period the plant is shut down you are losing sales, paying employees and incurring costs to clean up the mess. Does your policy include coverage for these types of costs?

3. Document your losses as you incur them.
As you begin to clean up or rebuild your property, you’ll likely receive invoices and such from the people doing the work. Be sure to save every single bill. You should also keep careful records of what your employees are doing during the disruption, whether it’s cleaning up debris or managing the business’s recovery.

4. Secure the support you need.
Preparing and filing an insurance claim can be an overwhelming endeavor if you’re unfamiliar with the process. Very seldom is it a one-time event. In many cases, an organization must submit multiple claims to the insurance company over an extended period of time.

Before you begin thinking about your claim, consider working with an insurance recovery professional who can help you assess and account for your losses. Most important, an insurance recovery professional can help to ensure your claim accurately and fairly reflects the damages you’ve experienced, leading to a timely resolution. An insurance company will typically cover the fees associated with these services under the standard professional fee or loss adjustment provision of a commercial insurance policy.

With an insurance recovery professional on board, you and your management team can focus on the most critical task at hand: your recovery. If you’d like to learn how PWB can support you in filing a post-disaster insurance claim, please give us a call today.

Navigate the Tax Rules for Boats and RVs

May 16, 2019 By PWB CPAs

Will you be cruising the waters on your boat or camping out in your RV this year? Besides the pleasure you can enjoy through your personal property, you may also be eligible for tax breaks, if certain requirements are met.

Following is a brief rundown of four prime tax-saving opportunities.

1. Chartering activities. It’s common for some boat owners to charter out their vessels for sightseeing or fishing excursions when they’re not being used personally. In other words, this becomes a sideline business that allows you to recoup some of your expenses.

Notably, you can use expenses to offset the taxable income from chartering activities, including the cost of fuel, repairs, insurance, supplies, equipment, mooring and storage, and even fishing gear or binoculars. Plus, you’re entitled to a generous depreciation allowance for the vessel itself.

Of course, your deductions are based on the percentage of boat use that’s business-related. For example, if you charter out the boat 50% of the time, you can deduct 50% of the expenses.

Finally, be aware that you could run into troubled tax waters if the activity is treated as a hobby, rather than a business. Under the Tax Cuts and Jobs Act (TCJA), hobby expenses are generally disallowed for 2018-2025. Also, a business operation may trigger other tax consequences (for example, self-employment tax for a sole proprietor).

2. Mortgage interest. Typically, you can deduct mortgage interest on a qualified residence, like the main place where you live, but you’re also entitled to interest deductions on a second home, like a vacation home. Surprisingly, the “residence” can also be a boat or a RV.

To qualify for this tax break under the tax code, the boat or RV must have sleeping, cooking and toilet facilities. So, if your boat has a galley, sleeping quarters and a head, you should be in the clear. You can’t just barbecue on a boat’s deck or throw a sleeping bag down below. Most RVs have the requisite facilities for this deduction.

Keep in mind that the TCJA imposes new limits on mortgage interest deductions for itemizers. It lowers the threshold for new acquisition debt from $1 million to $750,000, but prior loans are grandfathered. It also generally eliminates the deduction for home equity debt.

3. Charitable donations. Maybe you want to upgrade your boat or RV or your passion for boating or camping is waning. In any event, you might decide to donate the boat or vehicle to charity. Assuming certain requirements are met and you itemize deductions, this could provide a tax windfall.

As a general rule, you can deduct the current fair market value (FMV) of the boat or RV on the date of the donation. For instance, if you bought the RV for $80,000 years ago and it’s now worth $50,000, you deduct $50,000 on your personal return.

But don’t leave matters to chance. Obtain an appraisal from an independent professional. An appraisal is required anyway for property donations above $5,000.

Other special rules may come into play. For instance, the charity must use the boat or RV to further its tax-exempt function. Deal with a qualified charitable organization that is experienced with these types of donations.

4. Sales tax. Depending on your situation, you may be able to deduct the sales tax you pay when you purchase a boat or RV, although the rules have been complicated by the TCJA.

Previously, you could deduct all of your state and local property taxes, plus either your state and local income tax or sales tax. But now the total annual deduction for state and local tax (SALT) payments is limited to $10,000 for 2018-2025.

If you opt to write off sales tax instead of income tax as part of your annual SALT deduction, be aware that you can use either the actual tax paid, based on records, or an amount from a convenient IRS table. Generally, the actual expense method will produce a bigger deduction. Caveat: If you choose the table amount, you can add on sales tax from certain “big-ticket items” — like boats and vehicles!

To Summarize

These are just four ways you may benefit tax-wise from boats or RVs. At other times, you might use the property as transportation for hire or even claim home office deductions if you qualify under the strict letter of the law. Moral of the story: Be aware of all the tax-saving possibilities for these prized possessions.

Expertise for the Everyday and the Exceptional:
Meet Jeff Johnston and Susan Nash

April 2, 2019 By PWB CPAs

Sometimes life just doesn’t go the way we thought—or hoped—it would. If you’ve ever been in this situation, you know how stressful it can be, especially if you’re not sure where to turn for support.

With this in mind, we made a decision last year to broaden PWB’s expertise and services to better support our clients in the midst of life’s storms. We are pleased to announce we’ve recently achieved this goal by welcoming Jeff Johnston and Susan Nash to our team.

Get to Know Jeff Johnston

Throughout his 30-plus-year career, Jeff has directed hundreds of forensic accounting, litigation support, insurance recovery, and business valuation engagements for public and private companies. His experience includes conducting complex damage studies involving everything from lost sales to valuing a business, as well as testifying as an expert witness in court and arbitration. In every engagement, Jeff’s goal is to help his clients make informed decisions in a fair and timely manner.

As a PWB partner, Jeff leads our new Advisory practice. He is available to advise both companies and counsel on a broad slate of tax and legal matters ranging from complicated business disputes to damages studies.

Learn more about Jeff.

Get to Know Susan Nash

Sue specializes in helping individuals navigate the unexpected. With deep knowledge of taxation, particularly as it relates to estates, trusts, and gifts, she’s known for breaking complex issues into manageable steps.

In her role at PWB, Sue supports clients in the decision-making process while also helping to minimize tax liabilities. She is available to support estate attorneys and planning teams in complex estate tax matters, too.

Learn more about Sue.

Expertise for Wherever Life Takes You

If you’re facing a complicated personal or business-related challenge, please know Jeff, Sue, and the entire PWB team are here for you. We understand how critical the right expertise is to a successful outcome, and we are committed to making sure you have the support you need in any situation.

Give us a call anytime.
763.550.1100

Spouses Are Guilty Until Proven Innocent

March 18, 2019 By PWB CPAs

When you got married, you knew it was for “better or worse.” But you might not know about laws that hold you responsible if your spouse cheats on a tax return.

Married couples filing jointly should be aware that:

You are both responsible for tax, interest and penalties — even after a divorce or the death of a spouse.
The IRS may hold you responsible for all the tax due even if there is a divorce decree stating that your ex-spouse is accountable for previous joint returns.
You can be liable for tax even if none of the income on a tax return is attributed to you.

To illustrate how the law works, let’s say you have a wage-earning job and your spouse is self-employed. You file joint tax returns.

Next year, you get divorced and a year later, the IRS audits your tax return. Your ex-spouse is nowhere to be found and auditors determine that he or she didn’t report all the income from the business.

What Could Happen?

You are generally liable for paying the tax due, plus interest and any penalties. Your wages can be seized by the IRS even if you paid every penny owed on your share of the family income.

Fortunately, there may be a way to get off the hook. In some situations, the tax law provides “innocent spouse” relief if you can prove:

There is a substantial understatement of tax attributable to the grossly erroneous items of your spouse or ex-spouse.
The hidden income belonged to your ex-spouse and you didn’t benefit from it.
You didn’t know or have reason to know about the understatement.
It would be inequitable to hold you liable.

In January of 2012, the IRS released proposed streamlined procedures that make it easier to obtain equitable relief. In addition, the new guidelines includes an exception to the requirement that items must be attributable to the ex-spouse when that spouse’s fraud is the cause of the understatement or deficiency.

Be aware that the IRS is required to notify an ex-spouse that relief has been requested so that he or she can elect to participate. There are no exceptions, even for victims of domestic violence.

“Innocent” versus “Injured” Spouse

If your current or former spouse has gotten you into tax trouble, you may be able to get help from the IRS.

It all depends on whether the tax agency considers you “injured” or “innocent.” You probably think you qualify as both but they are two different legal terms:

An injured spouse files a joint return and loses all or part of a refund because of a spouse’s debts.

An innocent spouse claims no liability for items on a joint tax return that belong to a spouse or ex-spouse.

Let’s say you and your current spouse file a joint tax return and are expecting a large refund. But you receive a notice from the IRS stating that your refund is being seized to pay a debt owed only by your spouse. For example, back taxes from before you married, past due child support, a delinquent student loan or other federal debt.

You may be able to recover your portion of a joint tax refund that the IRS seized. To qualify, you must have earned your own income and made your own federal tax payments. Ask your tax adviser for more information if you think you qualify.

Advice: Don’t count on innocent spouse relief if you know your spouse is cheating on tax returns. The IRS often denies relief.

Consider filing separate tax returns — especially if you’re in the process of a divorce. It may save you a bundle in the future. For more information about your situation, consult with your tax advisor.

What Do the New Revenue Recognition Rules Mean for Franchisors?

February 21, 2019 By PWB CPAs

By Bryan A. Ekern, CPA

As usual, there’s much to think about at the start of a new year. If you’re a franchisor, revenue recognition should be top of mind as you plan for 2019. That’s because on January 1, 2019, the Financial Accounting Standards Board’s new revenue recognition rules went into effect for private companies (the rules went into effect for public companies on January 1, 2018). Technically known as “FASB ASC Topic 606, Revenue from Contracts with Customers,” these new rules could significantly alter how you recognize initial franchise fees.

What changes can franchisors expect?

The previous FASB rules required franchisors to recognize initial franchise fees upon substantial performance of their obligations to the franchisee, which generally resulted in recognition upon the opening of the unit. The new rules, however, may require franchisors to recognize these fees over the term of the franchise agreement, or when certain performance obligations are met. For instance, instead of recognizing a $50,000 increase in revenue at a new store’s opening, the franchisor must now recognize the amount over a period of what could potentially be several years.

What about performance obligations?

A performance obligation is a contracted agreement to provide a distinct good or service to a customer. In the event of a franchise unit opening, performance obligations might include site selection, equipment, manuals, training, and, of course, the use of the franchisor’s intellectual property (e.g., its trade name).

Theoretically, a franchisor could recognize a portion of the initial franchise fee upon the completion of each activity—in accordance with the franchise agreement, of course. But this is where it gets tricky. Other than equipment, performance obligations related to opening a unit will not likely be considered distinct. This is because they provide little or no benefit without intellectual property.

What should you do now?

First, be sure you understand the aforementioned FASB rules. Then, it’s a good idea to review your contracts to identify any performance obligations related to the initial opening of a unit. Next, determine which performance obligations are distinct and when each distinct performance obligation is typically completed. Generally, performance obligations are either completed at a point in time or over the course of time, the latter of which will likely be the case if the performance obligation involves the use of intellectual property.

Act now to start 2019 off on the right foot.

As you can see, the new revenue recognition rules could dramatically change the way you recognize your initial franchisee fees. Taking time to get acquainted with the rules and the details of your contracts as soon as possible could help you avoid unnecessary process changes and headaches. If you have questions about how you might be impacted, please give us a call, and we’ll help you sort it out.

Contact your PWB advisor today.

763-550-1100