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Category Archives: Accounting

Landlords Year-End Reconciliation Statements – A Possible Source Of Hidden Cash?

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There might just be a treasure chest of cash and cost-cutting opportunities hidden in the year-end reconciliation statement from your landlord, but you won’t find it unless you’re willing to roll up your sleeves and dig. Many tenants pay these reconciliation charges without thinking twice. But the savvy tenant thoroughly examines the statement, seeing it as an opportunity to improve his bottom line.

Commercial real estate leases often have provisions allowing landlords to seek reimbursements from tenants for their prorated share of operating costs. These charges are better known as common area charges, base year reimbursements, or capital expenditure amortization reimbursements.

As a tenant, you probably make estimated payments during the year and at the end of the year reconcile the difference between what you’ve already paid and the amount you actually owe.

But before you write a check, review the charges carefully. You might come across a few surprises similar to this one:

While reviewing reimbursement charges for a new client, we discovered that he paid two separate management fees to the landlord for his small property. The credit extended by the landlord for this single mistake cut our client’s reimbursement costs by 25% last year – a significant cost reduction. But what really came as a surprise was when, upon further investigation, we informed him that his bottom line had suffered from that same duplication error every year for the past nine years.

A careful review of your statements can often reduce your reimbursement obligations, but in some cases it might put you instead of your landlord on the receiving end of reconciliation payments.

All reimbursements you’re billed for should be authorized in your lease agreement. Authorized reimbursements typically include shared expenses like landscaping, maintenance, parking lot electricity, and minor repairs. Some landlords might seek reimbursements for unauthorized expenses which you’re not obligated to pay – like direct ownership costs, leasing commissions, improvements to specific spaces, and other expenses not related to common areas.

Even if you only find authorized charges on your statement, you should still make sure that you’re not being asked to cover unreasonable expenses. For example, eight hours of snow removal is an authorized reimbursement, but it’s unreasonable for you to pay it if the landlord didn’t have checks and balances in place to ensure that all eight hours were actually spent plowing snow. Landscaping expenses are also authorized, but they too can be unreasonable. You shouldn’t have to shell out the money to pay the landlord’s son $50 per hour to mow the grass, nor should you have to reimburse property owners that chose to replace a small dead tree with a tree ten times the height and cost. In addition to a thorough examination of his reconciliation statement, the savvy tenant avoids unreasonable charges by paying close attention to the work being done around him.

The broad range of expenses you may be asked to cover also includes a gray area. Sometimes landlords seek reimbursement for expenses that enhance the property’s value – like a new roof, re-paved parking lot, or HVAC equipment replacement. To you, the tenant, unanticipated charges like these seem to come out of the blue and often turn out to be “budget busters.”

So how does the savvy tenant navigate the gray area? He might start by looking at the list of reimbursable charges detailed in the CAM reconciliation statement he receives from his landlord at the beginning of each year. One way for tenants to avoid gray areas is to shift responsibilities from the tenant to the landlord in the lease document. Instead of listing expenses not authorized as reimbursable, we recommend listing the specific expenses which ARE authorized as reimbursable. An additional way to avoid “budget busters” is to place an annual cap on the expenses a landlord can seek reimbursements for in a single year.

With a qualified person to ensure careful documentation of your lease and annual reviews of your reconciliation statements, you’ll avoid these “budget busters,” unauthorized reimbursements charges, and unreasonable expenses. But as a savvy tenant, you’ll also see a significant reduction in your occupancy costs which will have a very positive impact on your bottom line!

[ad_2] Source by Gary L. Christensen

Can The Association Deny You Access To The Association’s Financial Records?

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Facts.

You receive information that association board members and representatives of the community management firm are having lavish dinners at some of the most expensive restaurants in Orange County, all at association expense. You request the association to provide you with records in order to substantiate the information that you received. The association declines to provide you with the records. Can the association be forced to provide you with these records?

Legal Analysis.

This issue is governed by Civil Code section 1365.2.

The short answer is “yes.” The association must produce to the owner, on the request of the owner, all financial records, which would include records relating to association restaurant expenses. The scope of records that a member is entitled to receive is very broad. It includes contracts with vendors, state and federal tax returns, reserve account balances, agendas, minutes of meetings of the board of directors, members and any committees, excluding executive session meetings, and membership lists. As to membership lists, the owner must state the purpose of the request which must be reasonably related to the requestor’s interest as a member. A member may opt out of the list so that that member’s name is not disclosed. A member is also entitled to look at the check register of the association.

The records must be made available for inspection at the business office of the association. The records also must be available for copying. The member may be charged a reasonable fee for the copying costs. However, the member cannot be charged an inspection fee, except that the association may charge $10 per hour, but not to exceed $200, for the time spent in redacting enhanced association records. This means that if certain association records have to be redacted, there can be a statutory charge for this service. The issue of whether any such information is entitled to be redacted is addressed in the statute. The statute says that the association may redact information where it is likely to lead to identity theft or fraud or where the information is privileged under law, such as attorney-client information, or where it would constitute an invasion of privacy of the members, or constitutes a record of disciplinary action against a member or discloses personal identifying information or discloses personnel records other than payroll records. Further, interior architectural plans for member’s homes may not be disclosed.

The association must produce information regarding compensation to its employees and vendors. Further, if the association is redacting or withholding documents, the association must explain the legal basis for this action. The association records may not be sold or used for commercial purposes not reasonably related to a member’s interest.

In the event of litigation between the association and a member regarding access to records, the prevailing party may recover reasonable attorney’s fees. In addition, the member may recover a penalty of $500 for each separate denial of records which was unjustified. In an action by a member against the association in which the association prevails, the association may recover its costs only if the court finds the member’s action to be “frivolous, unreasonable or without foundation.”

Electronically stored information may be compelled to be produced. The records to be produced include the current year and two previous years.

There is a time period for the association to produce the records. The records from the current year must be produced within 10 business days. The records from the two previous years must be produced within 30 calendar days.

The association does not have any liability for failure to retain records prior to January 1, 2006. If the association does have records prior to January 1, 2006, the statute is unclear as to whether these records have to be produced.

[ad_2] Source by Barry A. Ross, Esq.

Advantages of Cash Flow Statement Helps You Run a Successful Business

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In financial accounting, a cash flow statement or statement of cash flows is a financial statement that shows a company’s incoming and outgoing cash during a time period. All three statements are arranged from the same accounting information, but each statement serves its individual function. The statement of cash flow reports the movement of cash into and out of your business in a given year. Cash is the lifeblood of your company. The cash flow statement reports your business’ sources and uses of cash and the beginning and ending values for cash and cash equivalents each year. It also includes the combined total change in cash and cash equivalents from all sources and uses of cash.

Cash flow statements format planning involves forecasting and tabulating all significant cash inflows and analyzing the timing of expected payments in detail. We have highly skilled cash flow financing professionals prepare comprehensive periodic cash flow projections that can assist you in tasks such as budgeting, business planning and fund raising.

Advantages of the cash flow statement

  • Helps the newly formed companies to know their inflow and outflow of cash and thus prevent cash shortage
  • Helps the investors judge whether the company is financially sound
  • Cash flow statement records the inflow and outflow of cash over a period of time
  • We provides Cash Flow statements on monthly, quarterly, six monthly or yearly bases
  • Helps the company to know whether it will be able to cover payroll and other immediate expenses
  • These statements will be highly helpful for planning and management of future financial commitments

This helps them have an accurate analysis of the firm’s ability to meet its current liabilities. Our Accounting Firms possessing years of experience and expertise catering to the diverse requirements of global clients can help prepare periodic cash flow statements format – historical or projective. We deliver integrated Cash Flow financing management solutions that go beyond recommendations and reports.

These statements will be extremely helpful for planning and management of future financial commitments. Availing Cash Flow financing statements Format preparation support from us will act as a very useful money management tool that provides warnings in advance of periods of high expenditure and low sales. This is also a very important component in the application process for additional funding.

[ad_2] Source by James S Lee

CPA, ABA, CFP – Which Credentials Matter?

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When choosing a professional to help you file your income taxes – whether you are an individual or are running a small business – choosing the tax accountant with the right credentials is key. Flipping through the phone book or browsing through online business listings, you’ll likely encounter a veritable alphabet soup of acronyms such as CPA, CFA, CFP, CMA, ABA and others. In fact, there are upwards of 46 different acronyms that relate to certifications in accounting, finance and business. Of these accountant credentials, you’re most likely to retain a CPA, ABA or CFP. Here’s what each means:

Certified Public Accountants (CPA)

CPAs are most well known for preparing taxes, but they can also advise you on how to structure your small business and setup a bookkeeping system as well as help you plan for retirement, college and organizing your estate. CPAs must undergo rigorous testing and continuing education to maintain their licenses. This means accountants who are CPAs are highly qualified with up-to-date knowledge of the latest tax laws in their local area. That means a CPA operating in Seattle or Bellevue is required to be well-versed in both federal tax law and Washington state tax law.

Accredited Business Accountant (ABA)

An ABA is an accountant who has undergone additional training and has passed the Accreditation Council for Accountancy and Taxation (ACAT) exam. This is a voluntary accreditation and is meant to signify that this accountant specializes in accounting services for individuals and small- to medium-sized businesses.

Certified Financial Planner (CFP)

A CFP can help you with your investment goals. CFPs are a good choice if you are planning for the future, as they can offer a broad range of financial advice. So,which financial professional should you choose? That all depends. Are you looking to file your individual income taxes? Are you starting a small business? Or are you trying to build a reliable investment portfolio for the next 30 years? Different professionals serve different needs.

The best way to determine whether a financial advisor is a good fit for your needs is to schedule an interview or consultation. Many accounting firms have multiple specialties that work in conjunction to serve your needs. For example, some CPA firms also offer business consulting for small businesses and can help you set up a QuickBooks accounting system or provide advice on how to incorporate your independently owned business. So, take your time and interview at least three different accountants before deciding which one works best for you.

[ad_2] Source by John Huddleston

The Best Entity to Hold Real Estate

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Possibly THE most frequently asked question of me is “What is the best business entity to use for real-estate investments?” My recommendation to most people is that a limited liability company (an “LLC”) is the best entity for this type of use. Here’s why:

— Excellent liability protection for managers and members

— Flow-through tax treatment on LLC profits and losses

— Ability to transfer properties in and out of an LLC with minimal tax consequences

— Personal Asset Protection through the Charging Order procedure (for Nevada LLCs)

Liability Protection.

An LLC is similar to a C-corporation (“C-corp”) or a Sub-Chapter S corporation (“S-corp”) in that it exists as a separate corporate entity. It provides full liability protection to its officers and directors (called “Managers”) and its shareholders (called “Members”). As either a Manager or a Member, you are liable only for the money you have invested into the LLC and cannot be found personally liable for any debts incurred by the LLC. Consider the risks associated with owning real estate, especially rental properties. Tenant injuries. Trespassers injured while on vacant land. Unauthorized dumping or storing of hazardous waste. All of these could pose a serious risk to your financial well-being if you held the property in your name directly, even with insurance. Owning property in your own name means that in the event you are sued and found guilty, anything your insurance policy does not cover will come out of your own pocket. Putting an LLC entity between you and this personal liability means that your personal assets will stay protected.

Flow-Through Tax Treatment.

Unlike a C-corp, an LLC does not pay income taxes. It is a “flow-through” entity, meaning that, like an S-corp, the tax on the profits (as well as the write-offs on any losses) are passed through to the Members and taxed on their individual personal tax returns.

The flow-through tax treatment becomes important when you decide to sell a property, or convert it to personal use. Here’s a quick example of what happens to a $400,000 profit on real estate after taxes. For this example we are assuming that your personal tax rate on the monies received would be 39.1%, the top tax bracket:

C CORPORATION:

Gross Profit: $400,000

Less: Corporate Tax: -136,000

Subtotal: $264,000

Paid to You as a Dividend:$264,000

Less: Tax You Pay on Dividend: -103,224

Net Profit to You: $160,775

LLC

Gross Profit: $400,000

Paid to You: $400,000

Less: Tax You Pay on Profit: -156,400

Net Profit to You: $243,600

Ease of Sale.

LLC’s have an extra advantage over an S-corp (or a C-corp) where you want to convert a property to personal use, or trade it (called a “like-kind exchange” and subject to special rules) for another home of similar value. If held in an S-corp the conversion or trade of property would be considered a sale with the accompanying tax consequences. Held in an LLC, there are no tax consequences to converting or trading the property.

Asset Protection.

When using an LLC to hold real estate, it is very important that you also obtain comprehensive property insurance coverage. In the event of a lawsuit brought against the LLC by a tenant injured on the premises, or, believe it or not, even by a trespasser on your land, good and comprehensive insurance can save you money in the long run. It may even save the property itself if a claimant was to successfully sue the LLC and win. If the LLC had no insurance coverage in place a court may order the property sold to pay the claimant’s judgment. However, if a lawsuit is brought against you personally, and a claimant attempts to seize assets you hold through an LLC, the rules are a little different.

Charging Orders.

A charging order works in the same fashion as a lien — it is an obligation to pay money placed over assets. The charging order does not convey any voting rights, any ability to control the decisions of the LLC or the ability for a creditor to force the LLC to make profit distributions. The charging order merely grants the creditor the right to receive a portion of the LLC’s profits until the judgment is completely paid. And, in a fairly ironic twist, the monies received by a judgment creditor through a charging order will be treated as income and taxed.

Under Nevada law, a charging order is the sole legal method for creditors suing you personally to attack your assets held in an LLC. So for example, if you are a Nevada resident and have a day trading account, a boat and a duplex held in an LLC and are sued personally, a creditor would not be able to seize your assets. They would instead have to obtain a charging order over your membership interests in the LLC, entitling them to receive a portion of income earned by that LLC. If the LLC didn’t earn any income, then there would be no profits to be distributed.

Unfortunately, the charging order laws in other states may not be as strong as Nevada. For those of you who don’t live in Nevada, or who hold property in another state that does not offer strong charging order laws, we suggest using two LLCs. The first LLC is formed in the state where your property is located and holds title. The second LLC is formed in Nevada and is a passive holding company, holding all of the interests of the first LLC. You in turn hold interests of the Nevada LLC. What will happen in the event of a lawsuit brought against you personally is that no matter in what state a lawsuit is brought, a creditor will eventually have to come to Nevada to attempt to seize the assets, and will then run up against the charging order procedure. It costs a little more to set up and maintain, but if you are truly trying to make yourself as small a target as possible, it is a fairly cost-effective solution.

One final point to consider while on the subject of charging orders is to limit the number or dollar value of properties held in an LLC. If you have several properties held in an LLC and you depend on the income stream, then a charging order placed against that LLC could cause a major disruption to your earnings.

Do I ever NOT recommend using an LLC for real-estate holdings? Occasionally. For example, California assesses an additional franchise tax fee for LLCs with earnings over $250,000 per year. So, if your LLC is holding very high income-earning properties, you could wind up paying extra taxes. To avoid that, we may recommend that you use a Limited Partnership, as it does not have the extra franchise fee levied on its earnings. However, if you operate your Limited Partnership with a corporate General Partner, then you have the filing and operating costs for two entities in California, rather than one, not to mention two franchise tax fees.

Another example could be a situation where the entity is going to be used for estate planning purposes to pass your wealth through to the next generation, and you perhaps foresee trouble on the horizon with your children wanting control once they have gained a majority interest.

Limited Partnerships are a much older entity than LLCs, and the law over how the Limited Partnership is controlled is much more settled. A General Partner cannot be removed in most instances unless they are found guilty of serious misdoings or defrauding the Limited Partnership. In an LLC, however, the law isn’t as settled. And, though you might draft your LLC’s operating agreement as strongly as possible to give you control over daily operations, even after you have transferred majority interest in the LLC to your children, there is still a chance that the kids will be able to make a good legal argument in front of a sympathetic judge and have the operating agreement set aside.

[ad_2] Source by Garrett Sutton