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American Rescue Plan Tax Credits Available to Small Employers May 5, 2021

Posted by bradstreetblogger in : COVID, Deductions, General, Tax Preparation, Tax Tip, Taxes , add a comment

The Internal Revenue Service and the Treasury Department announced recently further details of tax credits available under the American Rescue Plan to help small businesses, including providing paid leave for employees receiving COVID-19 vaccinations.

The additional details, provided in a fact sheet released recently, spell out some basic facts about the employers eligible for the tax credits. It also provides information on how these employers may claim the credit for leave paid to employees related to COVID-19 vaccinations.

Eligible employers, such as businesses and tax-exempt organizations with fewer than 500 employees and certain governmental employers, can receive a tax credit for providing paid time off for each employee receiving the vaccine and for any time needed to recover from the vaccine. For example, if an eligible employer offers employees a paid day off in order to get vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day (up to certain limits).

“This new information is a shot in the arm for struggling small employers who are working hard to keep their businesses going while also watching out for the health of their employees,” said IRS Commissioner Chuck Rettig. “Our work on this issue is part of a larger effort by the IRS to assist the nation recovering from the pandemic.”

The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. Self-employed individuals are eligible for similar tax credits.

The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through Sept. 30, 2021.

The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

In anticipation of claiming the credits on the Form 941, Employer’s Quarterly Federal Tax Return, eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Self-employed individuals may claim comparable credits on the Form 1040, U.S. Individual Income Tax Return.

More details are available on this fact sheet.

Published on the IRS website April 21, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Bobbie Haines

–until next week.

Premium Tax Credit Repayments Suspended April 28, 2021

Posted by bradstreetblogger in : Deductions, General, Healthcare, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Taxes , add a comment

The American Rescue Plan Act of 2021 suspends the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) for tax year 2020. A taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the Premium Tax Credit (APTC) exceed his or her Premium Tax Credit (PTC).

The Internal Revenue Service announced today that taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.

Eligible taxpayers may claim a PTC for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace. Taxpayers use Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or may claim a net PTC.

Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.

The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.

Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.

Again, IRS is taking steps to reimburse people who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov. There is no need to file an amended tax return or contact the IRS.

As a reminder, this change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year. The IRS continues to process prior year tax returns and correspond for missing information. If the IRS sends a letter about a 2019 Form 8962, they need more information from the taxpayer to finish processing their tax return. Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.

See the  Form 8962, Premium Tax Credit and Fact Sheet 2021-08, More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit.

Published on the IRS website April 9, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Bobbie Haines

–until next week.

The New Child Tax Credit April 21, 2021

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

When President Joe Biden signed the $1.9 trillion-dollar American Rescue Plan last month, he launched a new and improved Child Tax Credit. The Child Tax Credit has been around since the Clinton Administration, yet this new version may have a positive effect on Americans who have been trying to find financial stability through the Covid-19 pandemic.

As with all new legislation, there are a lot of moving parts. From determining income requirements to who is a qualifying child, it is a dizzying array of details to determine which taxpayers will be allowed to take the credit. 

Here is what we know so far:

The Credit Is a Monthly Payment In 2021

The new Child Tax Credit is currently for 2021 only.  For families that qualify, it will be a $3,600 credit for each child under age 6. For children ages 6 to 17, the credit is $3,000. The big difference from previous year is that half of the credit will pay out monthly from July through December.

In each of those months, the IRS will deposit the Child Tax Credit into taxpayers’ bank accounts – $300 for each child under age 6 and $250 for each child ages 6 to 17.

The remaining half of the credit will then be an adjustment – a “true up”- on the 2021 income tax return to be filed in April of 2022.

For dependents over 18, the credit will be $500.

It Is Income Based and There Is A Phase Out

Like the stimulus checks for the Covid-19 pandemic, the new Child Tax Credit will be based on adjusted gross income (In each of those months, the IRS will deposit the Child Tax Credit into taxpayers’ bank accounts – $300 for each child under age 6 and $250 for each child ages 6 to 17.

The remaining half of the credit will then be an adjustment – a “true up”- on the 2021 income tax return to be filed in April of 2022.GI). For single taxpayers, that is an AGI of $75,000 or less. For head of household, that is an AGI of $112,500 or less. Finally, for those filing married filing joint, it is an AGI of $150,000 or less.

But keep in mind that the credit is subject to a phase out. That means for every $1,000 a taxpayer earns over the AGI limit, their credit will be reduced by $50. For instance, if the taxpayer is a single filer with an AGI of $85,000, their credit will be reduced by $500 per child.

How to Qualify

The new Child Tax Credit is a 2021 tax credit, which means it will be based on your 2021 income. However, in order to quickly begin providing relief to taxpayers, the IRS will look at your 2020 income tax, as they did with the stimulus programs. If the taxpayer has not yet filed for 2020, they will look back to the 2019 return. One benefit for many taxpayers is that they still have until May 17, 2021 to file their tax return without an extension, which also gives them an additional opportunity to provide the IRS with direct deposit instructions.

As this is an AGI-based program, if a taxpayer’s 2020 income is within the AGI to qualify, but their 2021 income exceeds the limitations and phase out, the taxpayer will need to pay back the credit on their 2021 tax return.

The IRS Is Embracing Technology

While the new credit might be straightforward for some families, it won’t be for others. Situations where a new baby is born, a divorce occurs or a family might have too high an income in 2021 create challenges. While the IRS initially indicated that getting a portal set up in time for the July 1st launch was unlikely, in comments to the Senate Finance Committee on Tuesday, April 13th, IRS Commissioner Charles Rettig stated that, “We will launch by July 1 with the absolute best product we are able to put together.”

As a result, for taxpayers that have unique situations, they should keep an eye out for the new IRS portal to open so they can enter key data in regards to the tax credit.

Unique Situations Where A Child Hits Age Threshold

As the program is based on AGI and age, there will be situations where a child changes age groups during 2021. As a result, taxpayers will need to consider the child’s age on December 31, 2021. For instance, if a taxpayer’s 5-year-old turns 6 before the end of the year, they will qualify for the $3,000 credit not the $3,600. Similarly, if a 17-year-old turns 18 before December 31, 2021, they will only receive a $500 credit instead of $3,000.

The Existing Child Tax Credit Is Still Available

There will be many taxpayers who will not qualify for the new Child Tax Credit. However, keep in mind, the Child Tax Credit that was established in the Tax Cuts and Jobs Act of 2017 (TCJA), will still be available. This is a tax credit for single taxpayers with an AGI of $200,000 or less or taxpayers filing married with an AGI of $400,000 or less. This group of taxpayers will still qualify for a $2,000 tax credit for each child under age 17.

Keep in mind this group might also need to access the portal if their 2020 income would have them qualify for the higher credit.

More to Come

As we get closer to the July 1 rollout date, more details on the plan will be available, along with the IRS portal. In the meantime, taxpayers should focus on filing their 2020 income tax return as well as estimating their 2021 income to make sure that they qualify for this tax credit. It may be prudent to seek the help of a professional or use one of the new Child Tax Credit calculators that are available.

Credit Given to:  Megan Gorman. This article was published in Forbes on April 14, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Bobbie Haines

–until next week.

IRS to Issue Refunds for Unemployment Benefits April 14, 2021

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Rules, Tax Tip, Taxes , add a comment

Normally, any unemployment compensation someone receives is taxable. However, a recent law change allows some recipients to not pay tax on some 2020 unemployment compensation.

The IRS will automatically refund money to eligible people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan. These refunds are expected to begin in May and continue into the summer.

Under the new law, taxpayers who earned less than $150,000 in modified adjusted gross income can exclude some unemployment compensation from their income. This means they don’t have to pay tax on some of it. People who are married filing jointly can exclude up to $20,400 – up to $10,200 for each spouse who received unemployment compensation. All other eligible taxpayers can exclude up to $10,200 from their income.

Information for people who already filed their 2020 tax return

This law change occurred after some people filed their 2020 taxes. For taxpayers who already have filed and figured their 2020 tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation. Any resulting overpayment of tax will be either refunded or applied to other taxes owed.

The agency will do these recalculations in two phases.

Taxpayers only need to file an amended return if the recalculations make them newly eligible for additional federal tax credits or deductions not already included on their original tax return.

For example, the IRS can adjust returns for taxpayers who claimed the earned income tax credit and, because the exclusion changed their income level, may now be eligible for an increase in the EITC amount.

However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but are now eligible to claim them following the change in the tax law. Taxpayers can use the EITC Assistant to see if they qualify for this credit based upon their new taxable income amount. If they now qualify, they should consider filing an amended return to claim this money.

These taxpayers may want to review their state tax returns as well.

Information for people who haven’t filed their 2020 tax return

Tax preparation software has been updated to reflect these changes. People who haven’t yet filed and choose to file electronically, simply need to respond to the related questions when preparing their tax returns. These taxpayers should read New Exclusion of up to $10,200 of Unemployment Compensation for information and examples. For those who choose to file a paper return, instructions and an updated worksheet about the exclusion are available on IRS.gov.

Published on April 8, 2021 on IRS.Gov.

Side Note: As of the publishing of this article, Ohio has yet to issue guidance on Unemployment Benefits refunds.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Bobbie Haines

–until next week.

Will the Sale of Your Home be Taxable? April 7, 2021

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Section 168, Section 179, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes , add a comment

We all expect that no tax will be due some day when we sell our homes. At least, that is what all of our friends and family tell us. And, there is a good chance that they will be correct at least under today’s rules which are always subject to change. The below article gives us the story from the 30,000 foot view. And, as long as you have lived in your home for at least two (2) years out of the last five (5) years and your gain is below $250,000 – single / $500,000 – married filing jointly; then, you may not even need to report the transaction on your return, much less pay any taxes. 

But when the transaction involves anything out of the ordinary such as a gain in excess of $250,000 / $500,000; the property was formerly a rental; was used as your business property; used as an office in the home; you or your spouse are in the military or an involuntary conversion occurs – just to mention a few, things can get complicated very quickly and a lot of tax money may be potentially due. So do your homework BEFORE you sell your home to help avoid any unpleasant surprises.

The article below was written by Mr. Geoff Williams. It takes a deeper dive into some tax consequences of selling your home. 

– Mark Bradstreet

The IRS is often more benevolent than you would think in these matters.

If you’re thinking about selling your home, here’s what you need to know about the taxes you may owe.

YOU MAY HAVE THOUGHT about the tax benefits of buying a home, but you probably haven’t thought much about the taxes you’ll pay when you sell your home. As you can imagine, the taxes on a home sale could theoretically be a small fortune, enough to almost scare you away from selling at all.

So, if you’re looking to be proactive and prepared, here are answers to some questions you may have.

Can I Avoid Paying Taxes on a Sale of a Home?

Yes. There is a very good chance that you won’t pay taxes on your home sale. In fact, if you’ve been worrying about this, it may be for nothing.

When you make money from the sale of your home, the IRS typically lets home sellers keep the first $250,000 they earn from the sale of the house. (That’s $250,000 if you’re single; if you’re married and filing jointly, you get to keep $500,000 of capital gains.)

So, What Happens if the Capital Gains Are Higher Than the $250,000 or $500,000 Thresholds?

In that case, you may be subject to capital gains taxes.

Here’s a hypothetical scenario to give you a sense of how much you might pay if you sell a home for well over $500,000 as a married couple filing jointly.

According to David Reyes, financial advisor and CEO of Reyes Financial Architecture in San Diego, if you bought a house 10 years ago for $350,000 and sell it now for $1 million (a relatively reasonable hypothetical in California), “you would owe taxes on any amount over the $500,000 – which would be $150,000.”

As in, you would owe taxes on that $150,000 (rather than having a $150,000 tax bill).

That said, you can probably get that $150,000 number to shrink a bit. “The IRS allows you to deduct certain closing costs such as title insurance and attorney fees. You can also deduct the commission that you pay your real estate agent. You may also deduct any home improvements that you made to the property. This figure becomes your cost basis,” Reyes says.

Those home improvements, incidentally, could add up to a lot. Did you replace the roof recently? Did you add a swimming pool to your backyard, or perhaps renovate the kitchen or add a room to the house? Hopefully you saved the receipts.

Reyes says that after all these deductions, you would pay taxes on the net proceeds.

“Let’s say that your total of all eligible deductions is $50,000. You would pay capital gains taxes on the (remaining) $100,000,” Reyes says. “Depending on your tax bracket, you could pay taxes of up to 20% federal income taxes, plus state taxes. This would be a tax of $20,000, plus state income tax.”

State Income Tax?

Yes, you may have to pay state income tax with the sale of your home – but you shouldn’t when the federal taxes are exempt. Still, check with your tax preparer just to be sure. “Every state is different,” Reyes says.

How Do I Report the Sale of My Home on My Income Taxes?

You may not have to. Says Reyes: “If you have a gain on your home that is under the exclusion, you do not have to report this on your tax return. If you do have a gain that is above the exclusion, you must report it on the Schedule D of your 1040.” For most people, yes, but there may be some complications to consider. We’ll run through some of the bigger ones.

The home is a rental. Is this a house that you don’t live in? Or maybe you did 10 years ago and then you rented it out, and now you’re selling the home? Even if you are making less than $250,000 or $500,000, you will be paying taxes on the sale. But keep in mind: If you lived in the house for a minimum of two years within the last five years, and you rented it out for the remainder of that period, you will avoid paying taxes if the profits are under the $250,000 or $500,000 thresholds.

The home is a vacation home or a second home. Again, you’ll be paying taxes on the house. It needs to be your primary residence.

Within the last two years, you sold a home – and claimed the $250,000 or $500,000 exclusion. So, you sold a house and didn’t have to pay the taxes on it? Awesome. But you did that 20 months ago? You will probably have to pay taxes.

Did You Say Probably?

You might be able to get an exclusion, or at least a partial one. This is one of those cases where it wouldn’t be a bad idea to talk to a tax preparer. In fact, whenever you are selling or buying, it’s generally a good idea to talk to a tax preparer to see how the home will affect your taxes. But if you sold a house 20 months ago and bought a new house with your spouse, and now you’re divorcing and selling the home to one or the other, you might be able to get an exclusion.

You may also be able to get an exclusion if your spouse died, and now you’re forced to sell the house.

If you lost your job and are now receiving unemployment benefits, you can probably get an exclusion.

But getting a partial or full exclusion doesn’t have to involve a tragic reason. For instance, if you and your spouse are having twins, triplets or even more kids, and you have suddenly outgrown the house, you may be able to get an exclusion. If that’s the case, you’ll want to talk to a tax preparer, and along with all of the parenting and baby books you’re buying, consult the IRS’s “Publication 523 (2019), Selling Your Home.”

Credit given to: Geoff Williams, Contributor for US News published May 20, 2020.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.

Tax Strategies for a Bonus or Windfall March 31, 2021

Posted by bradstreetblogger in : Business consulting, General, Retirement, tax changes, Tax Rules, Tax Tip , add a comment

Nice recap below which discusses some tax saving or tax deferral options available in the event of a bonus or windfall.                                                                                                       – Mark Bradstreet

Here are 5 Tax Strategies for a Bonus or Windfall.

Yes, it’s inevitable: That cash bonus for a job well done can result in you paying a bigger chunk of money to the Internal Revenue Service (IRS). To start, the IRS considers bonuses to be supplemental wages, which means your employer is required to immediately withhold 22% of your windfall. You could get some of that back at tax time. But then again, a bonus might bump you into a higher tax bracket, which starts at 10% for low-income taxpayers and tops out at 37%.

Heed another precaution, says Rosalind Sutch, a Philadelphia certified public accountant (CPA) at the tax consulting firm Drucker & Scaccetti: “If you work in two or more states during the year, you might need to pay taxes on your bonus to each state.”

Take heart: Your tax advisor can map out a few strategies to let you keep as much of that extra cash as the IRS allows.

KEY TAKEAWAYS

1. Set It Aside For Later

Remember, Uncle Sam truly wants you to have a great retirement. He’s encouraging us all to build up our nest eggs by using contributions to qualified retirement savings accounts, such as 401(k)s and traditional IRAs, to reduce taxable income. With that in mind, a bonus or windfall can represent a great way to jumpstart your retirement savings, especially if you’re allowed to use your bonus to make a special contribution. That, of course, will depend on your plan’s rules.

401(k)s

It might make very good sense to use the extra cash to maximize your 401(k) contribution. This move may even reap an additional reward if your employer kicks in a matching sum—provided you qualify under plan guidelines. The amount you can contribute to your 401(k) or similar workplace retirement plan is $19,500 in 2021. The 401(k) catch-up contribution limit—if you’re 50 or older—will be $6,500 in 2021.

IRAs

For 2021, your total contributions to all of your traditional and Roth IRAs cannot be more than $6,000 ($7,000 if you’re age 50 or older), or your taxable compensation for the year, if your compensation was less than this dollar limit. The deduction you can take on IRA contributions, however, is subject to limits based on your income, filing status, and whether your employer has a retirement plan in place.

Roth IRA

Another strategy, says Sutch, is to make a contribution to a non-deductible IRA, then convert the account to a Roth IRA as quickly as possible—at very least before the end of the year. You will need to pay taxes on any gains made because of an increase in the value of the converted IRA, but distributions you take later will be tax-free. That’s an important consideration that can save you money if the assets of the Roth IRA increase, tax rates increase, or you end up in a higher bracket on the eve of your retirement.

The caveat is that you’ll need to walk through the paperwork carefully with your accountant to avoid tripping up and generating taxable income, especially if you already have an IRA. Also, you’ll need to fit the Roth income limitations.

2. Defer Compensation

When it comes to getting back some of that 22% withheld bonus, you have a number of options. For one, you might look into a deferred compensation plan at work, which will allow you to spread out both the money you pocket and the tax liability. If you are paid in shares of stock, you’ll want to mull over the best time to cash out of a security that has increased in value—in order to offset or limit capital gains. Long-term capital gains rates are 0%, 15%, and 20%, depending on your income level.

3. Pay Your Taxes

Yes, the heading here sounds like a no-brainer. But let’s be a bit more specific: One beneficial way to use your bonus is to “catch up” on estimated tax payments or your withholding-tax obligations and thereby sidestep an IRS penalty for coming up short.

And that’s not all you can do. Under certain circumstances, you might be able to pay next year’s real-estate taxes in advance. It all depends on when your real estate taxes were assessed. Under IRS rules, you can deduct the prepayment of property taxes for the next tax year if the assessment was received and paid in the current tax year. Any prepayment of property taxes that have yet to be assessed cannot be deducted. Taxpayers are advised to check with their accountant before trying this tack.

4. Give It Away

If you itemize your deductions on Schedule A, you can shield some of your bonus by making a charitable donation to charity. For most cash contributions, up to 60% of adjusted gross income can be deducted. The IRS maintains an online resource to help taxpayers determine the deductibility of their contributions to tax-exempt organizations.

If you are unable to decide on a charity, you might consider donor-advised funds (DAFs), a tool for high-net-worth individuals. When you contribute to a DAF, the money goes into an account with your name. You are permitted to take the full charitable deduction in the year in which it was made, even though the funds might not be dispersed to charity until later. However, as with donations to charity groups, taxpayers should be certain donations to the DAF are deductible.

5. Pay Up Your Expenses

Another way to shelter a bonus or windfall is to pay upcoming deductible business or personal expenses before Dec. 31. You might consider upgrading your computer equipment or footing utility bills for your home office before year-end.

Using a credit card may make sense, provided you can pay off the additional balance in January.

Another idea: If you’re signed on for a health savings account at work, consider using part of your bonus or windfall to pay up to the contribution limit. Just be sure it’s money you can carry over to next year, or that you know you will spend in time.

The Bottom Line

As soon as you know of a bonus or windfall, book a meeting with your tax advisor to start safeguarding as much as you can.  

“Like a lot of tax issues, things can get very complicated,” says Sutch. “You don’t want to get whipsawed on some of the more intricate rules, so it’s a good time to lean on a competent tax adviser’s advice.”

The only windfall that won’t put you in that situation: the (maximum) $15,000 that someone can give you tax-free each year. Neither you nor the giver owes taxes on a gift that falls within the legal limit. Such gifts can add up: For example, if all four of your grandparents gave you the maximum, you could collect $60,000 per year, gift-tax free.

Credit Given to:  JAMES ANDERSON  Published in Investopedia on Feb 1, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.

IRS Announces Higher Estate and Gift Tax Limits for 2021 March 24, 2021

Posted by bradstreetblogger in : Deductions, General, Retirement, tax changes, Tax Planning Tips, Tax Rules, Tax Tip, Taxes , add a comment

Many of our clients have the best of intentions of completing their estate planning. Not that I am perfect. Many of us have been fine-tuning our estate plan for decades. Granted this process is never really done. It is a work in process. But if you have a plan in place only in your head, your family may be surprised by the estate tax owed. Some rather painless steps may be taken with the help of an estate planning attorney to avoid these unpleasant surprises.


– Mark Bradstreet               

How much money should go to the tax collector when you die?

The Internal Revenue Service announced today the official estate and gift tax limits for 2021: The estate and gift tax exemption is $11.7 million per individual, up from $11.58 million in 2020. That means an individual could leave $11.7 million to heirs and pay no federal estate or gift tax, while a married couple could shield $23.4 million. 

(Speculative portion who may be our next President was omitted since this was written shortly before Election Day)

The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2020-45. Forbes contributor Kelly Phillips Erb has all the details on 2021 tax brackets, standard deduction amounts and more. We have all the details on the 2021 retirement account limits, including the higher $58,000 overall 401(k) limit, too.

If you’re rich and you’re worried about the estate and gift tax exemption amounts going down, the time to start a gifting plan is now. The IRS finalized rules last year saying that it wouldn’t claw back lifetime gifts if/when the exemption is lowered.

The annual gift exclusion amount for 2021 stays the same at $15,000, according to the IRS announcement. What that means is that you can give away $15,000 to as many individuals—your kids, grandkids, their spouses—as you’d like with no federal gift tax consequences. A husband and wife can each make $15,000 gifts, doubling the impact.

Separately, you can make unlimited direct payments for medical and tuition expenses.

When you’re doing advanced estate planning—making gifts in excess of $15,000 annual exclusion gifts—you’re using your lifetime gift/estate tax exemption. With the new 2021 numbers, a couple who has used up every dollar of their exemption before the increase has another $240,000 of exemption value to pass on tax-free. For folks who are worried that that’s a lot to give, there are newfangled spousal lifetime asset trusts (aka a SLATs). They’re also IRS-tested advanced estate-freeze strategies like grantor-retained annuity trusts (GRATs) and installment sales to grantor trusts, where you give away the upside of assets transferred to the trust tax-free. For planning tips, see Trusts In The Age Of Trump.

Keep in mind the $23.4 million number per couple isn’t automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption—a move called “portability”—you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don’t know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill.

And note, if you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate.

Here’s a look at the federal estate tax/gift tax exemption over the years, according to the Tax Policy Center:

2021: $11.7 million/$11.7 million
2018: $11.18 million/$11.18 million
2011: $5 million/$5 million
2009: $3.5 million/$1 million
2008: $2 million/$1 million
2003: $1 million/$1 million

Credit Given to: Ashlea Ebeling – a Senior Contributor for Forbes published on 10/26/20.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.

Business Closures March 17, 2021

Posted by bradstreetblogger in : Business consulting, General, Tax Preparation, Tax Tip, Taxes , add a comment

If you can coughup $99 for the State of Ohio, you may form a business entity such as an LLC or a corporation. Granted that you must have a unique business name i.e., you may not use the same or similar name as another Ohio business. If the Secretary of State’s Office website is up and running, an official company may literally be formed online in minutes.  IRS FEINs (if needed) are free and may also be generated online. Ohio charges a nominal fee for a Vendor’s License which is used to collect Ohio sales tax. Setting-up payroll (only if you have employees) is also very inexpensive although several forms are necessary. Of course, if you have payroll you also need to register for state unemployment, worker’s compensation and city withholding if applicable. Many of these forms and applications have “trick” questions, so beware. Where am I going with all of this is – that to begin an Ohio business, it is pretty darn easy and inexpensive.

So, it would only be natural to assume that closing a business in the Buckeye State would be just as easy.  I suspicion you know where I am going with all of this.  Shutting down a business can be very difficult, cumbersome, time consuming and expensive. The state, IRS as well as any cities and payroll entities involved are all incredibly concerned that you may shutter your doors, close your bank accounts and still owe them money. So, to truly close your business, LOTS of hoops must be jumped through, forms prepared etc. Businesses are typically closed for financial difficulties which is painful enough. Adding insult to injury, you may owe taxes for many reasons such as delinquent sales taxes, past due payroll taxes and worker’s compensation, IRS taxes, Ohio taxes, city taxes and so forth and so on…  Some of these liabilities may become personal liabilities that need dealt with. 

You don’t want to run out of runway when closing down a business. It requires proper planning, finances and foresight for a proper shutdown. Professional advice is highly suggested during what may be a difficult time. 

– Mark Bradstreet     

Closing Because of the Pandemic? Beware of Potential Tax Hits.

Thousands of small businesses have shut down because of the COVID-19 pandemic. Adding insult to injury, many are facing tax hits as they wind down.

Small businesses have felt the brunt of the COVID-19 pandemic, with thousands of enterprises forced to close since the beginning of March.

As if going under because of a pandemic isn’t bad enough, some will face tax hits from their closures if they aren’t careful. Moreover, some are left wondering what to do with their COVID-19 loans and grants. As a result, instead of being able to walk away after closing up shop, they’re forced to navigate taxes and potential penalties.

“The last thing people think about when wrapping up a business is their tax obligations,” Mike Slack, senior tax research analyst at H&R Block’s The Tax Institute, told business.com. “They are running at a loss; they didn’t generate any taxable income. But there are still a lot of tax implications.”

Whether it’s filing your business’s final tax return or determining if you have to treat COVID-19 loans as income, there are several things small business owners have to consider when closing operations.

PPP loan proceeds may be taxable.

In the early days of the pandemic, the federal government released more than $2 trillion in aid under the CARES Act, with billions of dollars going to help small businesses stay afloat. Under the act’s Paycheck Protection Program, small business owners received loans that were forgivable if they used the money to keep workers on the payroll.

Despite all these efforts, thousands of small businesses couldn’t survive. Now they’re left wondering if they have to pay taxes on the money they received or, worse, pay back the loans.

“As currently written in the CARES Act, PPP proceeds are not taxable, but the IRS made a determination in notice 2020-32 that indeed it is taxable in a back-ended way,” said Mark Alaimo, who sits on the American Institute of Certified Public Accountants‘ (AICPA) Personal Financial Specialist Committee.

Under this IRS rule, PPP borrowers can’t deduct the expenses they incur to qualify for loan forgiveness. It throws murkiness into the mix and is a rule the AICPA is squarely against.

“That means if you have a $200,000 loss and if you received a $250,000 loan, you may have $50,000 worth of income,” Alaimo said. “The easiest thing people can do is assume all PPP proceeds are taxable income even if it’s been forgiven.”

According to Alaimo, most states have already indicated that they will tax any forgiven PPP loans just as they would tax any other forgiven debt. However, if your business loan wasn’t forgiven before you shut down operations, you may have to pay it back – plus taxes – unless you file for bankruptcy.

Forgiveness of debt can be a taxable event.

If you’re writing off debt as part of your business shutdown, it could trigger a taxable event. Like PPP loans, any reduction in debt you negotiate as part of your closing may be subject to tax. Let’s say you owe $100,000 to a creditor and they forgive you that debt: That $100,000 is treated as taxable income, according to John Smallwood, president of Smallwood Wealth Management.

Keep the IRS in the loop.

To avoid tax penalties, you have to make your business closure official. To do that, you must file your final tax return with the IRS. Whether you operate a partnershipC corporationS corporation or sole proprietorship, the IRS needs to know your business is closed.

“The final tax return is due within three to four months after the business date it closed,” said Slack said. “People get in trouble with that. Late filings are subject to penalties.”  

When filing your final taxes, Slack said, be mindful of how you account for proceeds from the sale of business assets. “When you sell assets, you are still supposed to report them as a disposition on your tax return. There’s a lot of nuances to it.”

“A lot of nuances” is particularly true during the COVID-19 pandemic, as business owners navigate forced closures and social distancing rules. Some run into tax trouble, despite states’ assurances.

That was the case with Heather Manto, owner and operator of Independence Barber Co. in Austin, Texas. To help businesses forced to shut down by the pandemic, Texas announced that it would extend the sales tax due dates and waive late fees. That was a relief to Manto, who had no income as her shop remained shuttered. But when she paid her sales tax a week late, she got hit with a penalty.

“Getting a human on the phone at that time was impossible, so I just paid and lived with it,” said Manto, who has since reopened her business. “It’s just a small example, but for a small business like mine, even those minor things hurt an already-pained business.”

Sweat the small stuff.

Paying sales tax late isn’t the only thing that can get you in trouble with the IRS or local tax collectors. You can face penalties for myriad reasons. The two big ones in dissolving a small business are neglecting to notify the state and failing to pay payroll taxes.

1. Notify the state.

Unless you file dissolution documents with the state where you operated, your business is not closed in the state’s eyes.

“As far as the state is concerned, they think you are still running your business and may hit you with state taxes for that year,” said Lisa Lewis, CPA and editor of the TurboTax Blog.

Make sure to cancel your employer identification number (EIN) and close your IRS business account. That requires you to send the IRS a letter that includes the business name, EIN, address and the reason you’re closing the account. The business remains open until you’ve filed all the required returns and paid all the taxes you owe.

2. Don’t forget payroll taxes.

If you have any employees, you must not only pay them their final wages, but also make good on any payroll taxes and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes could subject you to the trust fund recovery penalty.

Taxes are an unavoidable headache of starting, running and closing a business. But they shouldn’t be ignored; the last thing you want to do is simply walk away.

“You really have to be deliberate and thoughtful when winding up your business,” Smallwood said. “You have to make sure there are no personal problems and consequences that come as a result of your failed business.” 

Credit given to: Donna Fuscaldo. She is a business.com Writer. This article was published on Nov 10, 2020.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.
.

Choice of Business Entity March 10, 2021

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes , add a comment

Entity choice is one of my favorite topics. It reminds me of a chess game. The choice of your business entity is the cornerstone of your tax and legal foundations. Not all entities are taxed in the same fashion, others treat the taxation of a sale of its assets differently, and still others will have varying types of owner’s compensation just to mention a few of the different entity attributes. Other entity choices make switching from one entity to another very expensive. For example, switching a C corporation to an LLC may be a very expensive proposition. But, going the other direction by switching an LLC to a C corporation is usually painless. Nellie Akalp in the following article does an excellent job of discussing more of the pros and cons of entity choice.
                                                                    -Mark Bradstreet

A lot is riding on the business entity type you choose. The business structure you decide on affects your legal liability as an owner, tax obligations, growth potential, and compliance requirements you’ll need to satisfy on an ongoing basis. To make matters more complex, the entity type that’s right at the beginning of a business’s existence may not continue to be the ideal choice as the company grows and evolves.

So, what’s an entrepreneur to do? First and foremost, I encourage business owners to consult with a licensed attorney and accountant or tax advisor to get professional guidance. Every situation is unique, so it’s critical to have expert advice before making the crucial decisions of choosing a business entity and assessing when it’s time for a change.

To help you prepare for your all-important discussions with your legal and financial advisors, the following is food for thought about some of the most popular business entity types.

Business entity basics

1. Sole proprietorship and general partnership

Many small businesses start as either a sole proprietorship (one owner or a married couple) or general partnership (multiple owners). When business owners don’t formally register their companies with the state, they are, by default, considered either a sole proprietorship or general partnership. There is no legal or financial separation between the business and its owners.

Pros of sole proprietorships and general partnerships:

Cons of sole proprietorships and general partnerships:

2. Limited liability company (LLC)

The LLC business structure may be described as a bit of a cross between a sole proprietorship or partnership and a corporation. By default, an LLC is considered the same tax-paying entity as its owners (“members”). However, the LLC is regarded as a separate legal entity from its members. Articles of Organization must be filed with the state to form an LLC. 

Pros of limited liability companies

Cons of LLCs

3. C Corporation

A C Corporation is regarded as a separate taxpayer and legal entity from its owners. Business income and expenses are tied to the business, and the corporate entity reports and pays taxes. Ownership of a C Corp is through purchasing shares of stock.

Incorporating as a C Corp involves filing Articles of Incorporation (sometimes called Certificate of Incorporation) with the state. Other state requirements must also be met to start a corporation.

Pros of C Corporations

Most legal protection for owners—The C Corp structure provides the highest degree of liability protection for business owners. Under most circumstances, shareholders, directors, and employees have protection from lawsuits and debts of the corporation. 

Growth potential—C Corporations can have an unlimited number of shareholders and may issue multiple classes of stock. Typically, investors will be more interested in funding companies organized as corporations rather than those operating as other entity types.  

Tax flexibility—Eligible corporations may choose to be taxed as an S Corporation (see more about that in the next section). Often, corporations are eligible for more tax deductions than businesses operating as other business structures. 

Perpetual life—Ownership interests in a corporation may be transferred to others. Shareholders can sell, gift, or bequeath their shares of company stock, and the corporation continues to exist. Only when a C Corp is formally dissolved is its life ended. 

Cons of C Corporations

More compliance complexity and costs—In most states, it costs more to incorporate a business than to form an LLC. There are more internal and external rules to start and operate a C Corp, such as appointing a board of directors, drafting bylaws, filing an initial report, filing annual reports, etc.

Double taxation—A C Corporation’s profits get taxed at the federal corporate income tax rate. Then they are again taxed to shareholders when the corporation distributes those profits as dividends. This creates a double tax because the dividends paid do not qualify as tax deductions for the corporation. Another potential disadvantage from a shareholder’s individual tax perspective, is that they may not deduct any loss of the corporation on their personal tax returns.  

Overview of the S Corporation election for LLCs and corporations

The S Corporation is a tax election that qualifying LLCs and corporations can choose.

The benefit for LLCs is that S Corp election can reduce the amount of self-employment tax business owners must pay. An LLC taxed as an S Corp still gets pass-through tax treatment (tax obligations pass-through to the owners’ returns), but only the wages and salaries of business owners on the company’s payroll are subject to Social Security and Medicare taxes. Any profit distributions paid to owners do not have those taxes levied on them.

To request S Corporation election, an LLC must file IRS Form 8832 (to be taxed as a corporation) and IRS Form 2553 (to choose S Corporation election).

S Corp tax treatment allows corporations to avoid the sting of double taxation. As an S Corporation, a corporation’s profits and losses flow through to shareholders’ personal tax returns. The corporate entity does not pay income tax. Shareholders who are employed by the corporation pay Social Security and Medicare taxes on their wages or salaries from the company, but the dividend income paid to shareholders is not subject to those taxes.

Note that S Corporations may not exceed 100 shareholders. Therefore, corporations with more than that are not eligible for S Corp election.

Is your business entity type still the right one for you?

Business owners operating as a sole proprietor, general partnership, or LLC may find that their business is outgrowing the limitations of their entity type. A few things that might drive entrepreneurs to consider changing their business structure include:

The process to switch from one business entity type to another will vary by business structure and in which state the business is operating. An attorney and accountant can help determine whether a change may be beneficial. Also, a lawyer can advise on the correct steps to take to change business entities. Details are often available on states’ Secretary of State websites, as well. 

Ideally, when starting your business, it’s helpful to think both short-term and long-term about what structure will best serve your needs and vision. With some research, reaching out to the right resources for guidance, you will be empowered to make an informed decision. 

Credit Given to:  Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four. She is the Founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states. Nellie and her team recently launched a partner program for legal, tax and business professionals to help them streamline the business incorporation and compliance process for their clients.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.

Business Interruption Insurance Coverage March 3, 2021

Posted by bradstreetblogger in : Business consulting, COVID-19, General, Tax Tip, Uncategorized , add a comment

Question:  What is a business interruption insurance loss? 

Answer: “We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to insured property. The loss or damage must be caused by or result from a covered cause of loss.”

Several of our clients have suffered business interruptions over the years. Most of these interruptions have been the result of fire and water damage. The process of obtaining a settlement with the insurance adjusters are never fun and the process is often lengthy. The adjusters are typically difficult to work with and understandably so. Their job is to minimize the dollar amount of the claim. And, the adjusters have a lot of experience at doing just that. Our job is to maximize the insurance dollars our clients receive. Good recordkeeping is crucial to this process. Many of the formulas used to calculate the business loss are based on your financials. If your records are poor or even worse nonexistent, the adjuster will do their best to reconstruct your records but it won’t be in your favor. Every business owner believes their claim should be higher. A nonprofitable business regardless of the company size may not receive any insurance monies. The argument being that the business was losing money and during the down time, it lost just that much less. The insurance company will typically lowball their first offer. If you dig in your heels the settlement number will usually climb especially with the help of an attorney and an accountant. 


– Mark Bradstreet
                                                                                              

Eight Key Concepts to Understanding Business Interruption Coverage

The COVID-19 pandemic has resulted in unprecedented disruptions for businesses and the economy. Compounding the challenges for businesses are recent civil unrest in major cities along with the early days of what may be an active Atlantic hurricane season. These trends mean it’s vital for risk professionals to know how their property insurance policies — including business income or business interruption coverage — may respond to potential losses.

What’s in a Business Income or Business Interruption Clause or Endorsement?

Many insurers’ property policies include business interruption or business income either as a coverage within the form; others, including those insurers that use Insurance Services Office (ISO) forms for their policies’ content, add this coverage via endorsement. A business interruption clause or endorsement is designed to protect the insured for losses of business income it sustains as a result of direct physical loss, damage, or destruction to insured property by a covered peril.

While many such clauses are in use today, a typical business interruption insurance clause might read as follows:

“We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to insured property. The loss or damage must be caused by or result from a covered cause of loss.

Although the contents of individual policies and endorsements may vary slightly, many use relatively consistent language to describe business interruption coverage. To better understand this coverage and how it might respond to potential losses, it’s important for risk professionals to focus on eight key concepts.

Actual Loss Sustained

Business interruption coverage protects against an actual loss sustained by an insured as a result of direct physical loss or damage to the insured’s property by a peril not otherwise excluded from the policy. The insurer is only obligated to pay if the insured actually sustains an interruption of business leading to a business income loss. This loss, however, is subject to the policy limit or sublimit that is applicable to the specific location where the loss occurs or the type of peril that leads to the loss.

Business Income

Usually, an insurer is responsible for the reduction in net income that results from suspension of operations — whether wholly or partially — due to a physical loss at an insured’s premises. Generally, insurers consider business income to include:

Period of Restoration

Insurers are liable for the loss of business income only during the period of restoration, which is often defined as the length of time required to rebuild, repair, or replace damaged or destroyed property. The period of restoration begins when the physical loss or damage occurs; it ends when the property should, with reasonable speed, be repaired or replaced and the location is made ready for normal operations to resume.

Expiration of the policy does not end the period of restoration; as long as the insured’s physical loss occurs during the policy period, a business interruption endorsement will provide coverage for the duration of the period of restoration.

An endorsement published by ISO includes a 30-day extended period of restoration provision beyond the standard period of restoration, as do some insurers’ forms. This provides additional coverage after an insured business resumes operations following the date of repair or replacement of the damaged property, which can be crucial since it may take time for the business to return to pre-loss income levels. However, if an insured requires more than this 30-day limit, it may be able to increase this limit — from 30 days to any multiple of 30 days up to 720 days — by purchasing an extended period of indemnity optional endorsement.

Extra Expense

A business interruption clause in a property policy or added endorsement can provide additional coverages, including for extra expense. This extension covers necessary expense sustained by an insured during the period of restoration that would not have been incurred had there been no physical loss to real or personal property caused by a covered peril.

When a business income loss occurs, an insured is obligated to take reasonable steps to prevent or minimize it. Any expenses incurred to reduce the loss are covered as part of the business income loss, as long as they do not exceed the loss itself.

An insurer will typically not pay any part of the expense that is more than the claim itself. For example, an insurer will reimburse an insured $100 to reduce the business income loss of $200, but will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this $50 amount that are incurred to continue the business may be recoverable under an extra expense provision in an insurance policy.

Business income clauses or endorsements may also include “extensions of coverage” wherein the insured’s policy will insure against business income losses resulting from certain specified events. These include service interruption, contingent business interruption, leader property, and interruption by civil or military authority. A sublimit typically applies for each additional coverage.

Service Interruption

If included within the policy, a service interruption extension typically provides business income coverage arising from direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility service’s transmission lines and related plants, substations, and equipment supplying such services to an insured business. The owners, managers, or operators of such utilities or services are not named insureds under the policy.
A physical loss, damage, or destruction at the location of the utility or service typically must be the result of a peril similar to those covered under the insured’s policy. Some restrictions on coverage may apply, however, including:

Contingent Business Interruption (CBI)

A CBI extension is designed to cover an insured’s business income loss resulting from physical loss, damage, or destruction of property owned by others. These typically include direct “suppliers” of goods or services to an insured and direct “receivers” of goods or services manufactured or provided by the insured. The physical damage to these suppliers or receivers usually must be of a type that would be covered by the insured’s policy had the damage happened to the insured’s property.

A CBI extension typically provides coverage for the “direct” relationship between an insured’s “suppliers” or “receivers” of its goods or services. Coverage can sometimes be extended for suppliers of a direct supplier — typically known as “indirect” or “second tier” suppliers. Such coverage may require, among other things, that indirect suppliers are specifically identified.

Leader Property (Attraction Property)

A leader property endorsement provides coverage to an insured for direct physical loss, damage, or destruction — of the type insured by the insured’s property policy — to property not owned or operated by the insured, located within a stated distance to the insured’s property or business, that attracts business to the insured. Examples would include a nearby amusement park, casino, mall, or destination retail store.

Interruption by Civil or Military Authority

This extension provides coverage to an insured for the actual loss of business income it sustains during the length of time when access to its premises is prohibited by order of civil authority as a direct result of physical damage — as insured against in the policy — to property of the type insured. An interruption by civil or military authority extension is commonly found under most policies insuring business income or business interruption.

The coverage time period most commonly specified in this extension is 30 consecutive days. An insurer may also impose a waiting period — typically 48 or 72 hours — that must be reached in order for coverage to apply.

Familiarity with these critical terms and specific relevant policy language is crucial to any organization’s understanding of how business interruption coverage may or may not apply to a loss, the preparation of potential claims, and future purchasing decisions. Risk professionals — working with their advisors — should carefully review their specific policy language and other coverage options that may be appropriate given their companies’ individual needs.

For more information, contact your Marsh representative or:

Mike Rouse
US Property Practice Leader
212-345-0429

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet, CPA

–until next week.