Winter 2019 The FREEA Publication of the Maryland Society of Accounting STATE & Tax Professionals Accountant

3 Business Builders ThinkTank 6 TABLE OF CONTENTS

2 2019 Annual Convention 3 MSATP News: Are you a Member, Have You Joined? 3 Introducing Business Builders ThinkTank, Exclusive Peer Groups for MSATP Members 3 MSATP 2018 – 2019 Board of Directors

4 Technology Fun - Buying a Computer BY AL GIOVETTI

6 Updated Guidance for IRS Voluntary Disclosure Practice BY 9 ELI S. NOFF, ESQ. , CPA, PARTNER. MARY LUNDSTEDT, ESQ., ASSOCIATE 8 Get Organized in 2019 with a Document Management System BY DOCEO

9 Our Clients Deserve Better BY JONATHAN RIVLIN 11 Education Opportunity - Real Estate Depreciation Webinar Replay BY JERRY LOTZ

11 Itemized Deductions - A Layman's Summary BY TAXSPEAKER

CONTRIBUTORS 2019

Al Giovetti is a CPA in Eli S. Noff utilizes his background Maryland with over 35 years of as a CPA and attorney to Annual public accounting experience, vigorously defend clients Accreditation in Business before the IRS and state taxing Accounting (ABA, 1989), Tax authorities. Mr. Noff is the Convention Advisor (ATA, 1984), Retirement firm’s lead on international Advisor (ARA, 2007), and Principal, tax matters, which involves Giovetti and Giovetti Certified complex international tax compliance issues, Public Accountants (1992 – current). Giovetti and resolving many offshore voluntary disclosures and The 2019 MSATP inclusive Giovetti Certified Public Accountants is a full- streamlined filing compliance procedures, as well Annual Convention will be service small CPA firm in Catonsville, Maryland. Al as preparing complex Passive Foreign Investment at the Grand Hotel and is currently serving as Immediate Past President Company (PFIC) computations. He also represents Spa, Ocean City, MD from on the Board of Governors for the National Society clients in a number of tax collection matters, of Accountants (NSA). federal and state examinations and appeals, IRS Wednesday, May 22 – Friday, criminal investigations, and matters before the May 24, 2019. federal and state tax courts. Mr. Noff is a graduate of the University Of Maryland School Of Law As an attendee, you where he received his Juris Doctor with honors (cum laude). Mr. Noff is an active member of the will have an opportunity to Jerry Lotz is a Senior Savings American Bar Association and the Maryland State attend 24 hours of continuing Advisor at CostSeg Energy Bar Association. He is admitted to practice law in education, enjoy meeting Solutions. CostSeg Energy the State of Maryland and is a licensed Maryland and networking with your Solutions represents companies CPA. He is also a Rising Star with Super Lawyers. fellow peers in the hospitality whose mission is to help commercial property owners suite, enjoy direct ocean and leaseholders save money. front hotel accommodations He serves as an agent for Cost at the low price of $114 per Segregation Services Inc. (CSSI), based in Baton night, stroll the boardwalk, Rouge, LA. CSSI is an “independent” company Jonathan Rivlin, CPA, a Baltimore that provides “engineering-based” IRS Approved, native now residing outside the have a great time at the 60th Cost Segregation Studies and Tangible Property beltway near the old Enchanted Annual Anniversary Beach Regulation Consultation. Other CSSI services Forest in Howard County, was Bash, and much more. include: CAP-EX Reversal Analysis, Engineering- born for this profession. His Grade Energy Audits, 179D, 45L and LED Lighting father, David Rivlin, CPA took The Grand Hotel and Spa Tax Savings Implementations. Jerry is a Baltimore him to his office one day in 1986 native and holds a business degree from Towson and from there, it was only a is located at 2100 Baltimore University. He spent 30 years in various managerial matter of time. He graduated from the University Blvd and the Boardwalk, positions in the medical sales industry. Jerry enjoys of Maryland, College Park in 1997 with a BS in Ocean City, MD 21842. working to provide “exemplary” service to tax Accounting – in 3 ½ years, becoming a CPA a few professionals and the clients they serve. When months later in 1998. Jonathan started his career he is not working, he enjoys spending time with his at Grant Thornton, but realized that auditing To register, visit our wife, children and grandchildren. large corporations wasn’t his thing and left soon website : msatp.org/seminars after. Small business is in his family’s blood – four generations deep! In 2006, Jonathan opened his own practice, specializing in small businesses and developing a niche in Baltimore’s startup Mary Lundstedt, Esq. received community. In 2016, after many years of talking, her Juris Doctor from Thomas father and son joined together in their new firm, M. Cooley Law School in 2005, The Rivlin Group. Along with his brother Joshua, graduating magna cum laude. their firm blends wealth management, cloud- While in law school, Mary served based accounting technology, and comprehensive as an editor for the Thomas M. tax advice for their clients — with an emphasis Cooley Journal of Practical and on security of course. Clients come to The Rivlin Clinical Law. In 2006, she earned a tax LL.M. from Group when they have complex and difficult NYU. Prior to joining Frost & Associates, Mary situations; we don’t do easy. Jonathan has been a practiced in corporate tax matters where she member of MSATP for almost his entire career. He assisted clients in forming business entities and currently serves on the Professional Regulations advised on tax consequences of business ventures. committee focusing on bringing issues of concern *For additional images, For several years, Mary was also a legal analyst and to the membership. visit page 13. editor for the business entities, tax and accounting group at a leading legal publishing company.

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2 THE FREE STATE ACCOUNTANT • WINTER 2019 2018–2019 MSATP Board of Directors

Ellen Silverstein President Robert Medbery First Vice President Richard Gottfried MSATP News Second Vice President Are You a Member, Have You joined the private Facebook Community? Betty Kohls Stehman Secretary If you haven’t joined the exclusive, members-only community on Facebook, you’re missing out on some great information. Donya Oneto Treasurer Every week, you have the opportunity to join our live broadcast, where you can interact with MSATP leadership to receive updates on legislation, technology, and ways Ana Barnabe to advance and grow your practice.The community, comprised of hundreds of members, Delegate is also a great place to network and find strategic partnerships. Robert Boehner Simply do the following to join: Delegate

1. Simply go to the Facebook Group Jonathan Rivlin 2. Click Join Delegate 3. Await your access to weekly Facebook Live updates on MSATPTV with important happenings and helpful tools to implement. Dan Shaughnessy Delegate After we verify your membership, you’re in and have access to this amazing group of professionals. Barbara J. Smith Delegate Questions? Call 1-800-922-9672 for assistance Patricia Mager Board of Trustees Delegate Introducing BUSINESS BUILDERS THINKTANK William Feehley Exclusive Peer Groups for MSATP Members BUSINESS BUILDERS Immediate Past President MSATP The Business Builders ThinkTank is an inaugural MSATP-sponsored group, similar to Vistage, EO, or other CEO peer groups, designed Alverta “Sandy” Steinwedel to create a space where business owners in the accounting and Executive Director tax profession can connect with each other to discuss and work through challenges as you focus on scalability and development. We have three groups: Anne Arundel County, Baltimore County, Contact MSATP at and Montgomery County. [email protected] to join Each group consists of 8-10 participants who are committed to meeting on the third Thursday of every month from 10-11:30am or call 1-800-922-9672 (Anne Arundel County and Montgomery County) and from 8-9:30am (Baltimore County). These meetings will take place in the off-season, between May-November, for a total of seven meetings. ThinkTank Participants are required to attend five out of seven meetings to ensure and maintain integrity in the space and build trust amongst participants. Each session will focus on a key tenant of the book The E-Myth Accountant: Why Most Accounting Practices Don’t Work and What to Do About It. We will review how to integrate these concepts into your firm to create more scalability and efficiencies and future-proof your business.

THE FREE STATE ACCOUNTANT • WINTER 2019 3 MSATP CORPORATE SPONSORS Technology Fun - Buying a Computer by Al Giovetti

hoever thought a phone you two years of “concierge service” could cost $1,800? A on the system for free. If you pay Jonathan Pocius recent (November 19, for your computer using Costco’s 240.699.0060 2018) Google search Citibank credit card, Costco will add Wyielded a price of $1,846.79 for a an additional two years of “concierge www.payrollservicesllc.com space-gray iPhone XS with 512 GB and service” for a total of four years of dual sim. This price was discounted “concierge service” at no additional to $1,538.99 for Black Friday. A very cost (free?). Read free as the cost of ® expensive desktop personal computer the service policy is included in the (PC) might cost as much as $1,000 cost of the system. As accountants with Windows 10 Professional by we are taught that nothing is “free.” ® comparison. When some service or additional item At a recent (September 2018) is included “at no additional cost” Maryland Internal Revenue Service (or free), we know that the value has Dana Brunn (IRS) Liaison Committee meeting in really been incorporated into the cost, 443.794.8019 Owings Mills, MD, an IRS Criminal and we should do a fair market value www.tasconline.com Investigation Division (CID) Agent (FMV) allocation to determine the cost (with a gold metal shield) said that of each component in the transaction, his department was going to start and allocate part of the cost to the making “educational” visits to local service policy. tax accounting and tax preparation Moving along – the configuration firms with the intent to penalize local that I selected included: 8th generation tax accounting professionals for not Intel Core i7-8700 processor, clocked adequately securing sensitive client at 3.2 GHz; 8GB NVIDIA GTX 1080 information. Attendees attempted Graphics Card; 16GB DDR4 2666MHz to get the CID man to be a bit more RAM + 16GB Intel Optane; 2TB 7200 Gary Wilkerson specific so that the local tax accounting RPM SATA Hard Disk Drive (HDD); Killer 301.467.9779 professionals could prepare for these 1535 802.11 Wireless – AC 2x2 WLAN www.verizonwireless.com visits, but to no avail. + Bluetooth 4.1; Tray Loading DVD One of my favorite types of articles Burner; Killer Networks e2500 Gigabit is to recommend specific minimum Ethernet; Internal High-Definition configurations for computer purchases. Audio with Creative X-Fi Software; I will attempt to explain the technology and 1xHDMI. Let’s talk about a few of behind the recommendation, and these. incorporate the current cyber security The 8th generation Intel Core i7- recommendations of the IRS Security 8700 processor, clocked at 3.2 GHz Summit sub-group of the National is the most recent release of the Public Liaison Committee in my Intel computer processing unit (CPU). Jeremy Friedman computer selection. Remember that Sometimes referred to simply as the 302.401.4717 the IRS has the luxury of changing central processor, but more commonly their opinions at any time. I am called processor, the CPU is the www.websitesfortaxpros.com reminded of the quote, “No man’s brains of the computer, where most life, liberty or property are safe calculations take place. while the Legislature is in session.” There are two major producers of The quote is actually from Gideon J. CPUs: Intel and AMD (American Micro Tucker, Surrogate, in an 1866 report Devices). Wherever there are two of the final accounting in the estate of manufacturers, they tend to leapfrog A. B.—New York Surrogate Reports, 1 one another on performance and Tucker (N. Y. Surr.) 249 (1866), but is features in their annual releases of often attributed to Samuel Clemens new technology. The current Intel CPU (Mark Twain), and is actually contained is considered to be the most advanced. in several of his published works. Computer processors gain power and The configuration of the desktop speed by adding CPU cores to the Megan Roth system that I recently purchased was chip and by reducing the distances megan.roth@.com a system from Costco. If you buy your between circuits. The current Intel www.mileiq.com system from Costco, Costco gives chip, made with 14 nanometer (nm)

4 THE FREE STATE ACCOUNTANT • WINTER 2019 MSATP CORPORATE SPONSORS semiconductor device fabrication, is major video card manufacturers: faster than a 22 nm chip (previous NVIDIA and AMD. Currently NVIDIA technology). The distance the signal has the fastest video card available needs to travel is smaller, so the with the highest quality. The 8 GB processor takes less time to do a is Video Random-Access Memory. calculation. Video random access memory (VRAM The i7-8700 is $50 cheaper than or video RAM) is a high-speed array the i7-8700K processor, and does of dynamic random-access memory not have the capacity for over- (DRAM) used to store the image and Jerry Lotz clocking. Over-clocking means that video data that a computer displays. the processor can be modified to VRAM is an integrated circuit that 410.960.8269 run faster or do more computations serves as a buffer between the CPU www.costseges.com in the same time period than the and video card. Basically, the more pure i7-8700 processor. GHz is an VRAM a card has, the more complex abbreviation for gigahertz; one GHz textures or 3D meshes it can load. represents 1 billion cycles per second. The higher the resolution of the image The speed of microprocessors, you’re attempting to render, the called the clock speed, often is more VRAM required. If the texture measured in gigahertz. For example, and images you’re attempting to run a microprocessor that runs at 200 overload your graphics processor GHz executes 200 billion cycles per unit’s VRAM, the overflow goes to Jason Shirdon second. A cycle can more easily system RAM, significantly impacting 301.854.0010 be understood as one computation performance in a negative way. cycle. The higher the GHz, the The VRAM on the NVIDIA 1080 is www.easetech.com faster the processor runs. The i7- GDDR5. GDDR5, an abbreviation for 8700 and i7-8700K processors graphics double data rate type five come with 8 processor cores synchronous random-access memory, and 12 threads. A thread means is a modern type of synchronous that the processor can cycle 12 graphics random-access memory computations simultaneously. The with a high bandwidth interface more simultaneous computations, designed for use in graphics cards, the more efficient the CPU and the game consoles, and high-performance faster the processor runs. computation. A higher bandwidth Another problem with allows users to upload and download TaxSpeaker microprocessors is heat. Heat larger amounts of data to your 877.466.1040 is generated when electrical website. A higher bandwidth results www.taxspeaker.com current passes through the in significantly faster transfer speeds circuits in a microprocessor. If resulting in less frustration and the microprocessor gets too hot, greater computer user satisfaction. the performance suffers. The Data rates are often measured in microprocessor slows down to lower megabits (million bits) or megabytes the heat, and the slow-down reduces (million bytes) per second. These are speed (performance). The i7-8700 usually abbreviated as Mbps and and i7-8700K chips have heat MBps, respectively. Another term for problems, requiring very aggressive data transfer rate is throughput. and high-quality cooling systems to Each video card is a small maintain performance by keeping computer. It has a GPU, or a graphics Cliff Reiter the microprocessor chips cool. processor unit, like a CPU; VRAM is 914.705.5345 On October 8, 2018, Intel a type of RAM specifically designed announced the i5-9600K with to process graphics for video. VRAM www.cpasales.com 6 cores, 6 threads and 3.7GHz is significantly faster than RAM – overclocked (maximum 4.6 GHz), i7- graphics must be processed faster 9700K with 8 cores, 8 threads and than data so that the process of PARTNERS 3.6 GHz (up to 4.9 GHz) and i9-9900K displaying the graphics requires more Becker MassMutual with 8 cores, 16 threads and 3.6 GHz processing power and speed. Other CBS Imaging New Solutions (up to 5.0 GHz) Intel Chips. These components can have their own CCH Realty new chips are the next generation processing unit and RAM. CQI Associates Office Depot of microprocessor CPU, and started The next component is the 16GB Deluxe Checks and Roger CPA appearing on computers sometime DDR4 2666MHz RAM. DDR4 (double Tax Forms Review Course in December of 2018. Some other data rate type 4 synchronous random- DOCEO The Shred Mill very expensive (up to $2000 per access memory) is slower than DDR5 memory. The system RAM need not be Forrest T. Jones TaxAnswers chip) chips of this series were also & Co. UPS released. as quick as the video RAM. The higher Intercall As for the 8GB NVIDIA GTX 1080 the number that follows the DDR, the Graphics Card – there are only two faster the RAM. Another way to tell

THE FREE STATE ACCOUNTANT • WINTER 2019 5 speed is to read the specific speed delivering or obtaining media in this ready to go as soon as you plug them of the RAM being sold, usually found manner. As the multimedia file is in, with few incompatibility issues. printed on the box. At least 16GB of received it is presented on the monitor, Extra monitors should also be kept RAM is necessary for the encryption saving the user the time needed to so that a bad monitor can be replaced in techniques required to secure client download these large files. Meanwhile minutes as well. I have several monitors data. the file is loading onto your computer that are 24 inches on the diagonal so Encryption is achieved using in the background. Streaming media that it is easy to see the information Windows 10 Pro and an included refers to the delivery method of the and the forms that I am filling out. It program Bit locker. More information medium, rather than the medium does not hurt to have multiple monitors on how to encrypt your files and itself, and is an alternative to file so that forms can be displayed on one folders can be found at https://www. downloading, a process in which the monitor and filled out on another. Most comparitech.com/blog/vpn-privacy/ end-user obtains the entire file for the computers with the proper video cards encrypt-windows-files/ and https:// content before watching or listening can handle as many as four monitors. en.wikipedia.org/wiki/Encryption. to it. (https://en.wikipedia.org/wiki/ Make sure you talk to the sales person Remember to type this information Streaming_media). Multimedia refers if you need this kind of video card. into your computer internet browser to sound and video and/or graphic Multiple monitors require stands. – NEVER click on links in articles or animation which is presented at the Bob Jennings, in his 2018 Technology emails. same time, such as a video, a movie or Seminar, recommended several reliable Should you purchase a DVD audio video presentation. monitor stands at reasonable prices. burner? I did, because they are very I strongly recommend purchasing Bob says it is important to him to have inexpensive (less than $100). A blu- multiple keyboards and mice and a monitor stand that freed up valuable ray DVD burner will let you watch keeping the extras on the shelf in desk “real estate.” blu-ray movies and videos, including the office. You never know when The preceding computer continuing professional education a keyboard or mouse will break or recommendation is designed for a videos that may come on blu-ray. malfunction; having extras on hand principal in a tax accounting firm. One Most people stream this information gets you up and running in a matter might wish to choose a less expensive from an online server of the CPE of minutes. Wired mice and wired configuration for an employee, who provider. keyboards which require no batteries may not require the same resources. Streaming media is multimedia also are more readily replaceable Should you need more information, or that is constantly received by and than battery-powered Bluetooth want to discuss anything, contact me at presented to an end-user while being devices that require synching with the [email protected], or grab my elbow delivered by a provider. The verb computer and charged batteries to at a local seminar. "to stream" refers to the process of work. Wired keyboards and mice are

Updated Guidance for IRS Voluntary Disclosure Practice by Eli S. Noff, Esq., CPA, Partner. Mary Lundstedt, Esq., Associate

The objective of the recently practically removing any risk of criminal disclosures since the closing of the OVDP expired Offshore Voluntary Disclosure prosecution. On November 29, 2018, the on September 28, 20181. Generally, the Program (OVDP) enabled willful U.S. Internal Revenue Service (IRS) posted voluntary disclosure process maintains taxpayers with undisclosed foreign Internal Revenue Manual (I.R.M.) §9.5 some similarity to the OVDP, but assets to become compliant with U.S. interim guidance in a memorandum taxpayers and practitioners should note tax laws, while concurrently avoiding (the “memo”) addressing the process the revisions highlighted here, including serious statutory civil penalties and for all domestic and offshore voluntary the higher penalties for unreported

6 THE FREE STATE ACCOUNTANT • WINTER 2019 taxes due and delinquent informational Except as set forth below, the civil consideration other penalties already reporting. penalty under I.R.C. §6663 for fraud or proposed, like the willful FBAR penalty For tax purposes, a non-U.S. the civil penalty under I.R.C. §6651(f) for and civil fraud penalty. Presumably, one citizen is either a nonresident alien or a the fraudulent failure to file income tax may expect that if steep FBAR penalties resident alien. All aliens are considered returns will apply to the one tax year with were imposed, the agent may withhold nonresident aliens, unless they pass the highest tax liability. For purposes of informational return penalties in his or the green card test or the substantial this memorandum, both penalties are her discretion. presence test. A person meeting either referred to as the civil fraud penalty. The memo indicates that all of these tests is considered a resident impacted I.R.M. sections will be updated alien. Since aliens are taxed differently Note that, based on an analysis within 2 years of the date of the memo. depending on their status, it is important of the facts and circumstances of Furthermore, the memo’s procedures will to carefully consider what is involved. each case, the IRS may in “limited be effective for all voluntary disclosures The memo clarifies that the IRS circumstances” apply the civil fraud received after September 28, 2018.6 Criminal Investigation (CI) will be penalty to other years. Obviously, many While the updated process responsible for screening all domestic practitioners see the increased penalty continues to allow taxpayers to escape and offshore voluntary disclosure as potentially having a chilling effect criminal prosecution by voluntary requests to determine taxpayer’s on voluntary disclosures; however, all disclosure, taxpayers face a higher eligibility to make such disclosure. things considered, the primary objective penalty for unpaid taxes and delinquent As such, the IRS stated that “CI will of a voluntary disclosure should be to informational reports and an array of require all taxpayers wishing to make receive the protection from criminal new rules for the disclosure itself. An a voluntary disclosure to submit a prosecution. experienced tax professional’s guidance preclearance request on a forthcoming The memo addresses other should be sought to navigate the new revision of Form 144572.” The Form penalties, as well. As for the penalties process. 14457 will require taxpayer-specific for willfully failing to file FinCEN Form information, including “a narrative 114, Report of Foreign Bank Accounts If you have questions regarding providing the facts and circumstances, (FBAR), the memo explains that the international tax issues, please contact assets, entities, related parties and any IRS will assert such penalties per the Eli S. Noff of Frost & Associates, LLC at professional advisors involved in the existing IRS penalty guidelines under 410-497-5947. noncompliance.”3 I.R.M. 4.26.16 and 4.26.17. Generally, Also, for all voluntary disclosures willful FBAR violations result in a penalty IMPORTANT UPDATES TO THE received after September 28, 2018, of up to the greater of $100,000 or MARYLAND PERSONAL INFORMATION the memo provides that, unlike the 50% of the maximum account value. PROTECTION ACT OVDP’s eight-year disclosure period, in The memo goes on to state that by Jim Arnie disclosures resolved by an agreement, although a taxpayer is not precluded only the most recent six tax years are from requesting the lesser non-willful At the CPR meeting on required to be disclosed under the new FBAR penalty, “granting requests for Wednesday, December 12, 2018, procedures. Upon the IRS’s review and the imposition of lesser penalties is there was mention of a bill that consent, a “cooperative” taxpayer may expected to be exceptional.”4 passed during the 2017 session of be allowed to submit for prior years. Interestingly, the IRS states in the the Maryland General Assembly that Expansion of the disclosure period memo that “[p]enalties for the failure impacted small businesses dealing may be desirable when rectifying tax to file information returns will not with security of information. It was issues involving unreported taxable be automatically imposed.”5 Rather, also stated that every member of gifts, correcting tax problems before IRS agents have the discretion to MSATP should review the bill in entity sale or acquisition, and other assess such penalties. In making their its entirety to ensure they were in circumstances. determination, the memo clarifies that compliance with all requirements Significantly, under the interim an agent's discretion will take into contained in the legislation. This was guidance, taxpayers making a voluntary an enrolled bill meaning amendments disclosure are subject to a much larger were submitted by the opposite penalty for evasion. While the OVDP 4 Id. house (in this case Senate), therefore, imposed a 20% annual accuracy-related 5 Id. Informational returns include forms such as a committee made up of House and penalty on unreported taxes due, the Form 5471, Information Return of U.S. Persons Senate representatives discussed interim guidance provides for a 75% With Respect to Certain Foreign Corporations, and came to a final agreement on fraud penalty on the year with the and the Form 8865, Return of U.S. Persons With the contents of the bill. highest tax liability. Specifically, the IRS Respect to Certain Foreign Partnerships. states in the memo that: 6 Note that the memo also provides that “[a] Attached, you'll find a copy of ll offshore voluntary disclosures conforming to the enrolled bill, HB0974, a copy of the requirements of “Closing the 2014 Offshore the fiscal note since that gives an 1 LB&I-09-1118-014 (Nov. 20, 2018). We discussed Voluntary Disclosure Program Frequently Asked explanation of each provision of the the end of the OVDP in an earlier article, End of Questions and Answers” FAQ 3 received or requirements of the bill, in layman's Offshore Voluntary Disclosure Program Imminent, postmarked by September 28, 2018 will be language, and the last page of at: https://www.districtofcolumbiataxattorney. handled under the procedures of the 2014 OVDP. my report with the IMPORTANT com/Articles/End-of-Offshore-Voluntary- For all other voluntary disclosures (non-offshore) paragraph about each member Disclosure-Program-Imminent.shtml. received on or before September 28, 2018, the reviewing the bill. CLICK HERE to 2 LB&I-09-1118-014. Service has the discretion to apply the procedures read and review the bill. 3 Id. outlined in this memorandum.”

THE FREE STATE ACCOUNTANT • WINTER 2019 7 Get Organized in 2019 with a Document Management System by Doceo

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8 THE FREE STATE ACCOUNTANT • WINTER 2019 Our Clients Deserve Better by Jonathan Rivlin

s tax preparers and it. the US legal system is notorious accountants, it's our job If any of these scenarios spark for such ridiculous arguments to stay informed of all a pause in your thinking, there being given more weight than they manner of changes in may be an opportunity for you to deserve.) society.A Tax and regulation for help your clients save additional 2) The person we're referring sure, but also technology, security, monies! Whether a building is newly the client to is not qualified or and the shifting expectations of our occupied, newly bought, newly built, even allowed to discuss the tax clients. With some MSATP members or even if it has been owned for ramifications of their investment finding their practices under threat a number of years, there is likely recommendations. In many ways by the new tax law, I wanted to an opportunity for significant tax we're not qualified to ascertain the suggest an action that may augment savings! viability of their recommendations - some of the lost revenue. But really, yet the client is trusting us to know this article is geared towards any The primary reason to consider ALL of this stuff! practitioner that cares about their adding this service line to our 3) Many people within the clients and wants to ensure they are practices is about trust. Mainly financial management community in a position to advocate for their the trust that we worked hard to have fought the proposed Dept of clients - this article is for all of us! cultivate with our clients. This Labor "fiduciary rule." And while there Don't worry, this article will not is exactly the trust that non-tax may be problems with the proposed be yet another post about cloud financial professionals seek to rule, the reality is that many members accounting! (That's what Tech Tips exploit when they approach us to of the MSATP already have a fiduciary is for.) refer our clients to them. standard towards our clients. Why In reference to the notion that We've all been there. A well- would we refer our clients to an our client's expectations of who we dressed person saddles up to us and industry that fought for the right to are (to them) and what we do (from explains what they do for businesses NOT put their clients first? their perspective) have shifted, and individuals (set up retirement radically, we should consider adding accounts, college savings plans, It was in that vein that we added service lines to our practice that our etc), but that even though the client wealth management services to our clients need and demand. knows it’s a good thing to do, these practice. (And as an aside, opening What I'm about to suggest may professionals have a difficult time investment accounts involves filling be controversial to some and old getting the client to buy in without out forms - this is something we hat to others. I'd like to suggest their trusted tax adviser giving them already do for a living!) that practitioners add wealth our blessing. In our tenure as wealth management services to their management advisers, we've seen practices. What follows in this article There are several problems with some situations that shock the will be a series of reasons for why to this situation! conscience. Recent widows taken do this, a look at what the potential advantage of at the most vulnerable burdens are, and the logistics of how 1) We have no control over these time in their lives. Individuals that to get started. professionals and could be putting trade in securities that are completely Before going further though, ourselves in a malpractice situation mismatched with their risk tolerance please understand that this isn't a for making such a referral. Further, and financial literacy. Businesses quick fix or an overnight ticket to easy a savvy plaintiff's attorney could that made a critical mistake in setting town. Adding wealth management argue that by recommending the up their company's retirement plan services to your practice will take investment advisor in question that and are in jeopardy with the IRS - all a considerable investment of your it’s as if we're giving investment because the advisor that set them up time and some money. But in our advice - without a license. (While needed to make their commission for practice's experience, it was worth that is a tough argument to make, that month.

THE FREE STATE ACCOUNTANT • WINTER 2019 9 While it is true that many, many technology platform? Insurance exams. wounds that investors face are self- • Where are they located? The Series 7 is by far the longest, but inflicted, it's also true that many wounds • Will you have a local OSJ (Office you'll find that your experience as a tax investors face or inflicted by either naive of Supervisory Jurisdiction) or will you be preparer will give you "running start". but incompetent advisors or deceitful under home office supervision. None of these exams are easy, but with advisors that haven't been thrown out • What sales support and training a commitment to study, they can all be of the industry. will you be given? taken within a few months. These are your clients - the people • What fees and commissions do It was intimidating; taking a and families that you have served for they charge? professional certification some 18 years a long time. If you care about what • What is the nature of your after sitting for the CPA exam. However, happens to them beyond preparing a tax contract with the Broker/Dealer and/or it was all doable, and it made me a return, then adding wealth management the OSJ? Can they force you to leave better professional overall. services to your practice is an imperative, (for non-disciplinary reasons?) not an option. • Do they understand your role as 3) Once you pass the exams, you'll a tax advisor? need to learn about the various products In preparing for this article, I was • How stable is their corporate available, i.e. mutual funds, ETF's, index given a bit of MSATP history about this governance? funds, non-traded securities, and etc matter. In the past, the thought was that • Are they losing advisors or - what they are and when they are offering wealth management services growing? appropriate for a given situation. You'll represented a conflict of interest. For • How much leeway do they give also need to learn the Broker/Dealer's those MSATP members that are CPAs in how you run your practice? platform and process for submitting and attorneys, you're already held to a trades. Here again, although there is fiduciary standard. At the fiduciary level, There are many Broker/Dealers out a learning curve in the beginning, it's one must put the client ahead of one's there. Your humble author has direct nothing like the unending morass of our self. experience with three different Broker/ tax code. For those Society members that Dealer firms. One firm positioned itself are not CPAs or attorneys, it's a matter as specifically for CPAs adding wealth 4) Tell your clients that you added of how you present yourself to the management services to their practices. wealth management services to your community. You have a position of This firm was great (on the ) in that practice and that you can assist trust with your clients. If you make the they understood the unique situation we them with establishing accounts, commitment to put your clients ahead have, however, their commitment to our calculating RMDs & SEP contributions, of yourself, and operate in an above success coupled with their high fees and and establishing plans to withdraw board fashion with full transparency, poor technology made this firm a bad fit. funds upon retirement. Have these then the benefit you bring to your clients We next worked with a large publicly conversations as your clients come in for by offering these services outweigh traded Broker/Dealer. While their tax work. any potential for conflict. Additionally, technology was better and their rates to reduce the potential for a conflict, were lower, their questionable corporate Bottom line: This is not an easy you can operate as a fee only advisor. governance, severity of their contract, road. There are exams, regulations, However, in practice, we've found that and limitations on our practice became additional CPE, and new skills to learn. there are some instances where it is less untenable. It's not without cost - both in time and expensive for the client on a commission We since moved to a different money. But, as long as you focus on basis. Broker/Dealer, Cambridge Investment the end result: a well advised client Research, Inc., that has the right making smart financial decisions, you'll If this article motivates you to of supervision and compliance with be a better professional for it and the consider adding wealth management support, training, and technology. compensation will follow. services to your practice - Great! There's The OSJ we work with serves as our Caveat: Insurance as described a tremendous void out there and your advocate. The Cambridge's executive in this article means life insurance and presence is needed. board is responsible and committed to complex products that are part of a the success of their affiliates. And other comprehensive wealth management Here's what you need to do: advisors have been moving to this firm plan. These products are not meant to because of its reputation. compete with sponsors of the MSATP 1) Find a Broker/Dealer to affiliate It is imperative that you do your own that sell other insurance products with. A Broker/Dealer is an institution due diligence on which firm to affiliate that aren’t associated with wealth that will manage the administration with. However, you can contact me management plans. and compliance portion of your wealth through the MSATP and I'll be happy to management services. The Broker/ discuss matters further for those who Definition: OSJ = Office of Dealer will help you get licensed, keep are interested. Supervisory Jurisdiction – an organization up to date with continuing education that assists affiliates with compliance (investment specific), and will facilitate 2) Open your exam window and matters as well as provide training and your trades. study for the licensing exams. There support. Here are some things to consider are several designations to consider. when looking into Broker/Dealers: However, if you want to be able to Jonathan Rivlin is a CPA practicing • What support do they give their provide the most comprehensive set of in the Baltimore metropolitan area. He affiliated advisors? services for your clients, you should look has been a member of the MSATP since • How efficient and secure is their at taking the Series 7, Series 66, and 2002 and currently serves as a Delegate

10 THE FREE STATE ACCOUNTANT • WINTER 2019 on the Society's Board of Directors.

Securities offered through registered Happy 2019! Representatives of Cambridge The new year is an exciting time for MSATP. Not only does it Investment Research, Inc., a broker- mark a lot of exciting new changes for the Society (stay tuned), dealer, member FINRA/SIPC. Advisory but it's also our 60th anniversary! services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and the Look for our commemorative Rivlin Group PC are not affiliated. 60th-anniversary logo this year, and thank you to all for The Rivlin Group, PC your support over the years! C 60 YEARS E A 300 Redland Ct, Ste 212 Owings Mills, MD 21117

Education Opportunity - Real Estate Depreciation Webinar Replay

by Jerry Lotz

t’s been a pleasure and an honor to changes conversations about maximizing tax share pertinent information with you • Qualified Improvement Property savings. While there is NO CPE offered every quarter regarding the latest in rules and TCJA changes with this replay of Eric’s call, there is tax savings as it relates to residential • Section 179 current and updated invaluable information contained there- Irental, multi-family, commercial property rules in. If you have clients who have owned and leasehold improvements to those • TCJA ADS class life changes property for a number of years, recently properties. The company I represent; • Vehicle depreciation rules, issues, bought, recently built or improved Cost Segregation Services, Inc. in Baton latest changes property, it would be well worth your two Rouge, has helped owners of over 20,000 • Form 4562 preparation and hour time investment to take a listen/look properties across all fifty states to save on update at the replay. largployee relationship to an Federal income taxes. CSSI is partnered • Depreciation “action items” for apprenticeship and opening your minds with Eric Wallace, nations leader on the 2018 to the way the upcoming practitioners Tangible Property Regulations, TCJA and think and what they care about are the real estate depreciation. A few weeks There is none better than Eric as steps we need to take as we work to pass ago, CSSI and Eric offered a 2 hour a resource to help tax professionals that torch, both for our practices and for webinar on depreciation. maximize depreciation elections. During the profession. my 30 plus days this year of attending Topics included: MSATP live events and interacting with Just cut and paste or click this link to • Bonus, section 168(k) rules, latest many of you, I’ve enjoyed the numerous review.

Itemized Deductions - A Layman's Summary by TaxSpeaker

hen Congress initiated our not only raise revenues to run the Federal of any form of interest. It was never modern income tax system government, but to also promote various changed over the years because in the with the 16th Amendment moral, ethical or political themes. Contrary early years few Americans had mortgages, to the Constitution in to popular belief however, the home and after World War II the huge number W1913, no one envisioned the massive mortgage interest deduction was not one of returning service men and women that system of red tape and intricate rules of those politically or ethically motivated needed mortgages essentially forced that we have today. As our system grew deductions, it was just one of those things Congress to leave the deduction alone! after World War II, Congress realized that that was allowed at the beginning of the So what are the normal deductions they could use the income tax system to income tax system through the deduction available to all Americans? When we

THE FREE STATE ACCOUNTANT • WINTER 2019 11 prepare our annual tax returns the IRS tells us that this year about 15% of us will be able to “itemize” deductions. Years ago when we still prepared our tax returns by hand at the kitchen table, the use of itemized deductions required people to prepare the “long form”, so some folks still call it the long form today. Let’s discuss these itemized deductions, what they are, when to use them, and how to maximize their value. Congress provides taxpayers with a “standard deduction” that they are allowed to subtract from income to determine their net taxable income. In 2018 the standard deduction for a married couple is $24,000, and $12,000 for single taxpayers. Additionally for most taxpayers Congress allows them to deduct individual “itemized” deductions on Schedule A if they add up to more than the standard deduction. Of course this usually results in less income tax for people who have more itemized deductions than the standard deduction. So either way everyone is allowed to deduct either the standard deduction or itemized deductions, whichever is higher. Even if your itemized deductions are less than the amount of your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. You through them. $10,500 on medical bills, you can only may want to do this, for example, if the include $3,000 in your list of itemized tax benefit of being able to itemize your Medical Expenses deductions. deductions on your state tax return is Congress allows you to add So what can we do to plan for greater than the tax benefit you lose up all of your medical costs for the medical costs-it sounds like a waste of on your federal return by not taking “diagnosis, cure, mitigation, treatment time? Well for most of us, it is a waste of the standard deduction. To make this or prevention of disease” within certain time. However, if you have kids needing election, you must check the box on line guidelines. Medical care expenses must braces, or you have major dental, eye or 18 of Schedule A. be primarily to alleviate or prevent a medical expenses coming soon, about If you do not itemize your deductions physical or mental defect or illness. the only way to plan for deducting and later find that you should have They do not include expenses that are medical costs is to try and bunch all itemized — or if you itemize your merely beneficial to general health, such of your costs in one year. If you have deductions and later find you should not as vitamins, joining a fitness club or a had little medical expenses this year, have — you can change your return by vacation. An easy way to summarize you might want to hold off and get filing Form 1040X to amend the return. whether a medical bill is deductible or things done the first of next year, with You and your spouse may use the not is to ask whether it was prescribed the opposite being true if you already method that gives you the lower total by a doctor-if so it is probably deductible, have spent a lot of money this year on tax, even though one of you may pay if not, sorry it is probably not deductible, medical costs, glasses, dentists and more tax than you would have paid except for health insurance. health insurance, the main categories of by using the other method. You both The tax problem with medical expenses. must use the same method of claiming expenses is that they actually provide deductions. If one itemizes deductions, no deduction for most people! Why? Taxes the other should itemize because he Medical costs get to be included in the The list of deductible taxes includes or she will not qualify for the standard list of itemized deductions only if they state and local income tax and property deduction. are more than a percentage of income, tax. It does not include Federal tax. This So what are these itemized which is 7.5%. So if your family income deduction includes state tax withheld deductions? There are 5 main categories, is $100,000 and you spend $7,000 for from your paycheck, which is commonly and they are added up on IRS Form medical costs, you get no deduction. overlooked by people preparing their 1040, Schedule A. Surprisingly only 2 or Even if you have more than 7.5% of own returns. Sales tax may be deductible 3 categories provide any real deductions income in medical costs, you are only instead of state income tax based upon for most people. Let’s do a short review allowed to deduct the amount that is the year and the whims of Congress. This of all of the main categories and point more than 7.5%. Again, if your family deduction is one of the very few itemized out some planning ideas as we go income is $100,000 and you spend deductions that all Americans get to

12 THE FREE STATE ACCOUNTANT • WINTER 2019 you $2,500 in income tax, but you are MSATP CORPORATE SPONSORS include in the Schedule A list. still “out of pocket” the other $7,500. We The total deduction for taxes don’t have a 100% tax rate in America, paid this year is limited to $10,000, so reducing the amount of interest you regardless of the type. For most people pay is a worthy planning goal. that are home owners there is not a lot of planning opportunity here however Charity because their property tax and state You are allowed to deduct income tax will often exceed the $10,000 contributions to an IRS approved not Chris Corbett limit. About the only option is to move to for profit institution such as a charity 571.367.7971 a low income tax state. or church in the United States. Since an individual is not an IRS approved www.questinsurance.us Interest institution there is no deduction for The home mortgage interest money given to them. The best planning deduction is the thing that usually allows ideas for charity involve trying to make people to accumulate enough itemized contributions in one year. If you have deductions to exceed the standard given quite a bit this year, consider going deduction. As a general rule if you don’t ahead and paying next year’s amount have a home mortgage you won’t be in this year as well. If you are going to able to itemize. Congress allows you to make a special gift, do it in a year that include home mortgage interest in your you already know you will have enough list of itemized deductions within certain itemized deductions to exceed the guidelines. You must own the home, the standard deduction. The other thing to mortgagee must have a lien against remember for charities is that you must your property, you have to actually have a receipt. pay the interest, and you are limited to Donny Lala interest on a loan for the first $1 million Other Deductions 410.828.4286 dollars (or a lower limit of $750,000 on This list is short, sweet and gone. www.usbne.com new loans after 12/15/2017) of debt. There are no longer any deductions These rules are pretty intricate, so we allowed for work boots, dues, uniforms, will leave their discussion to our office, lock boxes, mileage or similar but the simple thing to remember is to miscellaneous expenses. Bluntly, your always retain IRS Form 1098 each year, employer should be reimbursing these because that is where the amount of amounts if they are work related. interest you paid is reported. Summary Is there any planning you can do This discussion of one of the with home mortgage interest? most tax planning concepts of itemizing deductions rather than using Actually yes there is. First time the standard deduction includes many homebuyers should always buy a home summaries that overlook the intricate early in the year so that they get a full rules involved. At our office we make sure year of interest deductions to add in to to closely examine the rules every year Michael Ashley the itemized list and possibly exceed for you to try and get the best treatment 800.400.6650 the standard deduction. Existing possible when it comes to this issue, www.inclegal.com homeowners should always go to their and we are always happy to answer any mortgagor near the end of the year questions you may have on any of the and make an extra payment to pay individual items in this newsletter. any interest that has accrued since the last payment-this makes sense for both income tax and financial planning MSATP Annual Convention: purposes. The Grand Hotel & Spa

There is no longer ANY deduction for equity lines, 2nd mortgages, HELOC’s or similar items unless the borrowed money was used to improve your home.

Finally, let’s shoot down the myth that paying home mortgage interest is a good thing, tax-wise. If you pay $10,000 in mortgage interest, it does not save you $10,000-it saves you $10,000 times your tax rate, so if you are in the 25% tax bracket paying $10,000 in interest saves

THE FREE STATE ACCOUNTANT • WINTER 2019 13