Muso & Co. HOW TO LOWER YOUR COMMERCIAL PROPERTY INSURANCE. Do you or DOES your business have a commercial property?

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1 Muso & Co. CERTIFIED PUBLIC ACCOUNTANTS HOW TO LOWER YOUR COMMERCIAL PROPERTY INSURANCE Do you or DOES your business have a commercial property? If yes, do you have commercial property insurance that can protect you or your business from minor damages to major financial losses? If you have commercial property, you probably agree that commercial property insurance premium is a significant part of your operating expense. Some people may choose to under insure because of the cost, but this is very dangerous, so you should never try. So, how can YOU save on commercial property insurance? From our experience, there are several factors that can contribute to a lower premium: 1. Age of the property Insurers like newer property because they comply with the most up-to- date building codes. 2. Alarm Insurers give discounts for properties that have updated sprinkler system, fire detection, and burglar alarms. 3. Construction Concrete steel vs. Wood frame. Insurers prefer concrete steel over wood frame. 4. Occupancy Insurers prefer 100% occupancy. If your property s occupancy rate is close to 50% or less, only a few insurers are willing to quote. Insurance premium is significantly higher. 5. Who your tenants are Carefully choose your tenants, because insurers think some tenants may increase the fire risk factor of your property. There are many other factors that insurance companies look at when writing your policy. So you should know what they prefer, and most importantly, find an experienced broker who can help you sort out your options and come up with a good plan. TAX/ACCOUNTING How to Lower Your Commercial Property Insurance... 1 Charitable Contribution and Tax Deduction... 2, 3 Cancelled Debt from Your Real Estate... 4, 5 Supporting Organization as a Public Charity... 5 OTHER Computer Virus Steals Your Bank Information... 6 Contact Information... 6 PAGE 1

2 Charitable contribution and Tax Deduction Category of the organization If a corporation is an active, qualified tax exempt organization under Section 501 (c) (3) of the Internal Revenue Code, certain expenses paid by a member in connection with the organization may be deductible as charitable contribution, and therefore reportable on Schedule A of Form 1040 Federal income tax return. A charitable contribution is a donation or gift to/ for the use of a qualified organization, paid within the taxpayer s tax year, within the applicable statutory ceilings for individuals, and meets certain substantiation requirements. A taxpayer may deduct unreimbursed expenses for gas and oil, or he/she may take the standard rate of 14 cents per mile. In addition, toll and parking fees are deductible as well. records must be kept Whenever a charitable donation is made, records must be kept. These records give information on the amount of the contribution, whether it was in cash or in kind (property), and whether there was a benefit that resulted from it. Cash contributions include cash, checks, credit cards, payroll deductions, or out-of-pocket expenses when donating services. The records that are kept for cash contributions depend on whether the contribution was less than $250, or more than $250. For contributions less than $250, one of the following records must be kept: a canceled check or a legible account statement, a receipt from the charitable organization, or other reliable records that include the organization s name, date of contribution, and amount of contribution. For contributions over $250, the record keeping requirements are the same as above, but special substantiation requirements may apply. No charitable deduction is allowed for contributions over $250 unless the taxpayer has acknowledgement from the organization or through payroll records. Only multiple checks written on the same day may be combined into a single contribution. There are requirements for the acknowledgement as well. It must be written, include the contribution amount, whether there were any goods/services given from the organization to the taxpayer, and an estimate of the value of these goods and services. The acknowledgement must be received on or before the date the return is filed and or due date. PAGE 2 CONTINUED ON PAGE 3

3 CONTINUED FROM PAGE 2 For contributions made by payroll deductions, an acknowledgement is not needed. However, if $250 or more is deducted from a single paycheck, the taxpayer must keep a pay stub, Form W-2, or other document that proves the amount withheld, and a pledge card from the organization stating that the organization doesn t provide goods or services in return for the contribution. For contributions that aren t made in cash, the records kept depend again on the amount of the contribution. For non-cash deductions less than $250, the taxpayer must have a receipt from the organization showing the name of the charity, the date/location of the contribution, and the description of the property. A receipt can also be a letter or form of written communication from the organization acknowledging the contribution and containing the information above. Non-cash deductions between $250 and $500 must also have an acknowledgement. The rule is similar to deductions under $250. Non-cash deductions between $500 and $5,000 must have the same acknowledgements and written records described under deductions between $250 and $500. In addition, the taxpayer s records must include how the taxpayer acquired the property, the date the property was acquired, and if the property was held less than 12 months. If the taxpayer isn t able to provide information on the date the property was acquired or its cost basis, a statement of explanation must be attached to the tax return. CHARITABLE CONTRIBUTION & TAX DEDUCTION Non-cash deductions over $5,000 must have the same acknowledgements and written records described under deductions between $500 and $5,000. To figure out whether the deduction is over $5,000, combine all claimed deductions for similar items donated to any organization during that year. Generally, if the deduction for an item is more than $5,000, the taxpayer must get a qualified appraisal and attach the appraisal summary to their tax return. For contributions over $75 that are partly as gift and partly as goods/services, deductions are limited to the excess of the contribution over the value of the goods/services where the donor has made a payment of more than $75. The organization must also provide a good estimate of the value of the goods or services. The organizations that meet the following conditions are not exempt: 1. Organizations eligible to receive tax-deductible contribution, Pub 78 data, 2. Organizations whose federal tax exemption was automatically revoked for not filing Form 990 return, notice for three consecutive years, or 3. Form 990-N (epostcard) filers and filings. Please call us at (323) for questions. PAGE 3

4 CANCELLED DEBT FROM YOUR REAL ESTATE What is a canceled debt from Real Estate? It means that you borrowed money from a lender to buy real estate, in the repayment process you cannot repay the loan on time and the lender repossesses the property and forgives the money you owed on it. Generally speaking, the amount cancelled needs to be included in your gross income as other ordinary income for tax purposes, and maybe there is a reportable loss or gain from the disposition of the real estate. But there are exceptions to the taxable income arising from a forgiven debt. Exceptions: Principal Residence Indebtedness up to $2 million if married filing joint return and the property was purchased between 2007 and Bankruptcy Insolvency Certain farm debt Non-recourse loan. It is a loan for which the lender can only pursue the property being financed and used as collateral in case of default. It means that the lender cannot take you personally in the default. But it may have other tax consequences as a reportable gain from the disposition of the real estate. Example 1: A borrower bought an investment house in Las Vegas in 2005 and he lives there until The original purchase price was $170,00o. In 2009, the house was taken through foreclosure, the market PAGE 4 value of the house was $200,000 and the mortgage debt cancelled was $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, lease loan) totaling $250, and assets totaling $230, Fair Market Value $200, Basis of the property $170, Capital Gain from the Foreclosure $ 30, Because the property was his principal residence, he qualified for the 2-out-of-5 year rule to exclude the capital gain in his taxable income. 2. Forgiven debt $220, Fair Market Value $200, Ordinary Income from Foreclosure$20, In this situation, he was insolvent because his total liabilities of $250, were more than his total assets of $230, This is an exception to the rule mentioned above. Example 2: A borrower bought a house as an investment property in the amount of $ 385,000 in In 2011, the property was taken through foreclosure. The FMV of the property was $200,000 at the time of foreclosure, and the remaining balance was $ CONTINUED ON PAGE 5

5 CONTINUED FROM PAGE 4 CANCELLED DEBT FROM YOUR REAL ESTATE 310,000. He was in the process of filing for bankruptcy because his total liabilities were $450,000 and his net total assets were $200, Fair Market Value $200, Basis of the Property $385, Capital Loss -$185, Forgiven Debt $310, Fair Market value $200, Ordinary Income from foreclosure$110, In this situation, since he is insolvent because his total debts are more than the fair market value of his total assets, he will not be charged by the cancellation of the debt. If you have any questions, please contact us. Usually, when we say Non-profit Organization, it refers to a 501(c) (3) organization. This may be common. But, many people might not know that a 501(c) (3) organization can be categorized into two types of organizations, i.e., a public charity and a private foundation. There are several regulations to distinguish the two types of organizations. A public charity has more favorable tax benefits for both the organization and its donors. In addition, one great benefit of a public charity is that it can set up another public charity called a supporting organization. In order for a public charity to keep its public charity status, a public charity has to comply with the following rules: A public charity must receive support from the public for more than 1/3 of its total income, A public charity s investment income should be less than 1/3 of its total income. Therefore, if a public charity has many properties PAGE 5 for rent and the rental income is more than 1/3 of its total income, the public charity would lose its status of public charity. By setting up a supporting organization, the public charity can avoid this situation. A public charity that sets up a supporting organization is called a supported organization. A Supporting Organization is a public charity as long as the organization exists exclusively to support public charities. It does not matter how much the organization earns in investment income. Income from a supporting organization to a supported organization is considered as public support. In this way, a public charity can keep the status of public charity by letting a supporting organization do the investments, and then the money is donated to the supported organization. If you have any question, please contact us.

6 Other TAX / ACCOUNTING / MANAGEMENT CONSULTING NOVEMBER - DECEMBER, 2013 CONTINUED FROM LAST ISSUE In the last issue, we described examples of recent trends in stealing our bank information. How virus/malware approaches the computers Virus/malware intrusion route Links and attachments in s Advertisement links/banners on websites Virus-infected websites Free downloads of software, music, videos Variety of skillful approaches Nowadays, it is almost impossible to prevent all the virus attacks because of a variety of skillful methods. Regular websites get hacked and embedded with virus-infected tools; almost everyone receives realistic or tempting phishing s. What you can do You can minimize the risk by taking some basic, routine actions. Install every updates immediately, for any software, Java, flash player, internet browser, Windows OS, Mac OS. Install Anti-virus AND update periodically. Many people install and never update, so these computers are vulnerable to new viruses. Occasionally check if your computer has any virus; run Anti-virus and scan your computer periodically. Even a click on a link gets your computer infected with a fatal virus. Anti-virus software cannot block all the viruses in this world since there are too many kinds and also Anti-virus software companies need a few days to a week to detect a new virus and create a removal tool. Especially Anti-virus can do nothing if users approve to install something bad without knowing it. Never open attachments and never click the link in s even if it is from your good friend. Confirm first. Be cautious and see if the message from someone you know is saying something unusual or not natural. Please review your bank and credit card accounts periodically and see if there are incorrect or unusual transactions. Your daily action can fully minimize the risk and protect your assets. Muso & Co. 901 Corporate Center Dr. #411 MontereyPark, CA P: F: info@musoco.net To subscribe e-newsletter or unsubscribe, please contact us at the above. PAGE 6