High Net Worth Accounting Tax

Sliding Door Injury Results in $21.5M Trial Verdict

Holland AmericanA federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.

The personal injury damages awarded by the jury were $5M, which are tax free.  The punitive damages were $16.5M which means a windfall for the IRS.  That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct.  That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.

Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.

As you might suspect, Holland America Cruise has appealed the verdict so a settlement for an amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.

Morey and Associates is an Orange County California CPA Firm with offices in Newport Beach and San Clemente.  We service businesses and individuals who seek to lower their tax bills, legally.  Call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.

Craft Brewery Sells for $1 Billion

Ballast PointWhen a craft brewery sells for $1 billion dollars, then you realize that it’s no longer a tiny niche business.

Craft beer accounted for 11% of U.S. beer sales in 2014 and market share is rapidly increasing in 2015. Just this week, the owner of Corona and Modelo, Constellation Brands, purchased Ballast Point for roughly $1 billion.

Ballast Point started selling beer commercially in 1996 and growing at a rate of 80% over the past two years. According to Brewer’s Assn, it is the 31st largest craft brewer in the country. Ballast Point is available for sale in 30 states and Sculpin IPA is their hot seller. Overall, Ballast Point produces approximately 300,000 barrels annually and the sale does not include Ballast Point Spirits, which makes rums and whiskeys.

Ballast SculpinTo put this into perspective, Constellation Brands will be paying 20 times Ballast’s revenue in 2014. And if Ballast’s revenue increases 100% in 2015, then the multiple is 10 times revenue, which is still a stiff premium.

And while demand for craft brews explodes, demand for watered down national brands like Bud, Miller, and Coors is flat which is creating a trend towards consolidation. For example, AB InBev’s takeover of SABMiller for $107B.
While the acquisition of craft brews is nothing new, the valuation on this purchase is eye opening.

Morey & Associates is an Orange County CPA Firm that works with business owners that would like to eventually sell their business for $1B or more.  If you are searching for an accountant during your next growth phase, call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.  Our offices are conveniently located in Newport Beach and San Clemente.

 

Tax Rules – Convert Primary Residence to Rental Property

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

Residential Real Estate - CA BeachFirst off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications

Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:

  • You actively participate in all real estate activities for the property
  • Your adjusted gross income is under $100K for the year
  • Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

If you are searching for a CPA Firm that specializes in Real Estate Accounting, call us at 949-759-5626 and ask for Jerry Morey.  We offer a free initial consultation.

Morey & Associates is a Orange County CPA Firm working with clients throughout Southern California.  We have convenient offices in Newport Beach and San Clemente.

Home Office Tax Rule Changes

Home Office 2There was a time that determining the correct deductions for your home office was complicated and could lead directly to an audit. Luckily, those days are in the past. The IRS no longer considers a home office a red flag, and they have found ways to simplify the process of taking this deduction.

Before 2013, business owners that worked out of their home were required to determine the actual expenses of their home office. This could include items such as utilities, insurance, and mortgage interest. The amount that could be deducted as a business expense was determined by the percentage, of the total square footage of your home, that was used for office space, but in 2013 that all changed.

For taxable years of 2013 and beyond, the IRS has introduced a simplified option. This allows business owners to multiply a prescribed rate by the square footage of the home that is being used as office space to determine the allowable deduction.

This change permits business owners to reduce the need for recordkeeping as actual expenses no longer need to be tracked.

There are two requirements that a business owner needs to meet to be eligible for the home office tax deduction. First, the area of your home that is used for your office must be used exclusively for conducting business. That means a kitchen table is not a home office, but if you have a room in your home that you use for office space exclusively, that would qualify.

Secondly, your home office must be your principal place of business. That doesn’t mean you can’t have an office elsewhere, but you need to be using your home office for meetings with clients, or some other activity that would suggest it is not simply an area that you work in from time-to-time.

If you have a home office, don’t hesitate to take the deduction you are entitled to. With the simplified option to determine your deduction, this is one time the IRS has made it too easy to pass up.

Supreme Court Decision on Same Sex Marriage Impacts Estate Planning

Supreme CourtWhile being able to marry your partner regardless of sex may seem a symbolic gesture to some, with that right comes many new legal rights as well that have a direct impact on estate planning. These changes should be discussed with your human resource department or estate management planner.

From wills to end-of-life-documents to trusts to planning funerals and even having access to their partner in the hospital, all have changed with the Supreme Court’s ruling allowing same sex marriage in all fifty states. Before this ruling, same sex couples’ rights could come and go when they crossed state lines or be taken away by future state rulings.

Now, all of the normal rights and protections given to opposite sex married couples are afforded to same sex couples. This includes state benefits, federal benefits as well as pension protection and spousal rights of inheritance.

In addition, same sex couples will now be able to form a joint marital trust and no longer be required to pay double inheritance taxes. Also, they will enjoy spousal rights of inheritance as well as being able to act as executor or guardian if their partner were to become incompetent before death.

Finally, for those who have children or adopt children, both partners can now sign birth certificates or adoption papers meaning that if one partner died the other does not lose custody of their children due to not legally being recognized as a parent of the child.

For years, estate planners were put in the position of telling same sex married couples that there were two sets of rules, and the protections of marriage did not apply to them. This is no longer the case. With the Supreme Court’s ruling, same sex married couples have all of the same rights, protections, and responsibilities of traditional married couples.