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How to report loss to the IRS

The curb appeal of homes and businesses has been impacted by Hurricane Michael on October 10, 2018. Reporting the losses to the IRS is part of the financial recovery process that the tax payer 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:

  • AGI in each year
  • When returns were filed
  • Taxable income in each year
  • Need for cash

 

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 taxpayers 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. Although 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 other 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:

  • Adjusted basis in the property before the casualty
  • Decrease in the fair market value (FMV)

 

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 prior to 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 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 or you may want to consult your friendly CPA.   

  

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Streamline Your AP Process


The Accounts Payable process can be difficult to manage. Business owners will often complete one step of the process but forget to record it properly. Mistakes like this can result in accidentally over- or under-stating your expenses. When the process is poorly managed, bills can get misplaced, overlooked, or paid late. All of this reflects poorly on the business.

At the Bean Team, we believe very strongly in having an efficient AP process. With our system, there are fewer errors, quicker turn-around time, and everything is recorded and documented for future reference. Here is an example of what our process typically looks like:

  1. Bills from vendors come directly to us.
  2. We scan and save copies of each bill.
  3. Each bill is entered into QuickBooks.
  4. We get approval from the manager or business owner to pay the bill.
  5. We print a check using checks the business owner provides, or pay with an approved credit card.
  6. The bill is then marked as paid in QuickBooks.
  7. If a check is printed, it will be mailed straight from our office.

 

We also incorporate Bill.com into our workflow to further automate the AP process. With this web-based payables solution, managing your AP can be done with ease via a mobile app. We also can assist with setting up bills to be paid on an automatic schedule. This ensures that nothing will be paid late again.  

Most issues that arise related to the vendor will be handled by us, unless instructed otherwise, or if we do not possess the needed information. When we are the point of contact, the AP process can move more quickly. Constant back and forth between business owners and vendors can interrupt the flow of work, as well as cause friction between the two. Having an intermediary, like us, helps ensure good business relationships.

For any business, maintaining an effective AP process is a key to success – ask us about how to get started on streamlining your Accounts Payable today!

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outsourcing accounting

6 Benefits of Outsourcing Accounting


Providing Outsourced Accounting is one of many services we provide at the Bean Team. Complete outsourcing of accounting makes the most sense for business that don’t have enough accounting tasks to occupy 2 or more employees.

Here are 6 benefits of outsourcing accounting to a qualified firm:

  1. Save Time and Focus: By outsourcing, the business owner and management can focus on the operations of the business. They don’t spend time doing accounting tasks that they don’t like to do and are likely not qualified to do. The business owner saves the time and focusses on the business. You are good at your business, we are good at accounting.
  2. Save $: After taking into account the time you would save, the cost to outsource is typically less than an in-house solution, especially when cost of the business owner’s time is considered in managing or doing the accounting tasks. The Bean Team understands that time is money.
  3. Team vs. Individual: When you outsource, the work is done by a team of professionals ranging in skill sets from entry level accounting, up to a seasoned CFO or CPA. This allows a team approach to enable a system of tasks and cross training. The team completes the work on time even if one member is out or if a team member needs to be replaced. The outsourced model provides for a process based on a system instead of the knowledge being possessed by one person a defined skill set.
  4. Customized and Staffed Solution: Clients receive a customized solution that allocates the accounting tasks done by the firm and those tasks done by the client. The firm recruits, vets, hires, and manages the team to deliver the offered services. The client doesn’t need to do any of these HR or management tasks as it pertains to accounting tasks. The end result is less stress and  peace of mind for the client.
  5. Best-in-Class Systems: The outsourced solution offers the best people and the best systems. The outsourced firm tests, vets, purchases, and then rolls it out to clients in a way that spreads the cost and spreads the benefits to all. Systems that are online, mobile, secure, backed-up, and integrated are requirements in the systems used. Knowledgeable, qualified, and conscientious professionals.
  6. Scaled Solutions: The outsourced solution can scale up or down as accounting volume increases or decreases. Scaling can be done quickly without the need for the client to go through a recruiting process or laying off personnel. This is all done quickly and seamlessly by the outsourced firm.
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