Napa Valley Winemakers Must Act Quickly to Get Accurate Claims Adjustments

Winemakers in Napa Valley must respond quickly to the financial challenges caused by the earthquake that recently rocked the renowned winemaking region.

Winery

Wineries that carried earthquake endorsements on the business interruption portion of their insurance policy have to move quickly to get the most accurate claims adjustment. “In order to get a precise claims adjustment, a winery has to first engage an insurance adjustor with extensive industry experience in winery losses,” said Thomas Garland, Manager at Appelrouth, Farah & Co. with extensive winery loss experience. “Understanding the complete winemaking process from harvest to crushing, to fermentation, to draining and pressing, to aging, and finally to bottling is a very detailed endeavor that requires understanding of production, yields, and varietal allocations,” added Mr. Garland.

Smaller wineries often gamble and choose not to obtain earthquake endorsements because they are cost prohibitive. The silver lining for these smaller wineries is the fact that the harvest season is just beginning. Wines need stillness to age properly, but the earthquake changed altered this process. Many wines that were originally destined to become Premium and Ultra-Premium wines with high margins may now need to be repurposed as lower margin common table wine.

“Appelrouth Farah & Co., has extensive industry experience having been involved in losses that stemmed from the February 2010 earthquake that riddled the winemaking region of Chile,” said Stewart Appelrouth, Co-Founder of Appelrouth Farah & Co. “From business interruption as a result of the damages, to the loss of attraction as a result of cancelled wine tours, hotel stays and bookings, our team will work closely with the adjustors by offering resources to accurately quantify and reasonably estimate the losses suffered and help the winery get back to where it would have been but for the loss,” added Mr. Appelrouth.

Wine losses are complex, yet with the help of an experienced team, a winery can get back to the art of winemaking and delivering a premium product to oenophiles worldwide. For information on how to successfully mitigate wine losses, contact Stewart Appelrouth or Thomas Garland at 877-446-0999.

Tax Deductions For Volunteer Work

If you do volunteer work for a charitable organization and have not kept track of your out-of-pocket expenses, you might be passing up an excellent opportunity to lower your tax bill. To qualify, your unreimbursed expenses must relate directly to the charity, and you must itemize your deductions on your tax return. Here is a brief rundown of some possible deductions.

  • Volunteers may deduct the cost of phone calls, postage stamps, supplies, and other out-of-pocket costs incurred in their volunteer work. For volunteers who are required to wear a uniform, the cost of buying and cleaning uniforms is deductible if they are unsuitable for everyday wear.
  • The cost of your time, no matter how valuable it may be, is not deductible. That’s true even if you would normally be paid for the type of service you contribute. For instance, accountants who perform free consulting for charities can’t deduct what they would normally charge for their services. 
  • Using your car in connection with volunteer work can earn you a deduction. The standard mileage rate for volunteers who use their own cars is 14 cents per mile. Alternatively, you may deduct your actual unreimbursed expenses for gas and oil – but not maintenance, depreciation, or insurance. Either way you choose, related parking fees and tolls are deductible as well.
  • If you travel overnight for charitable purposes, your expenses are deductible as long as they are reasonable in amount and not connected with personal activities or any element of recreation.
  • Special rules apply to conventions. Travel and other out-of-pocket expenses related to attendance at a convention for volunteers are deductible only if you have been chosen as a delegate to represent the organization.

Finally, just remember that it is up to you, the volunteer, to substantiate your deductions. If you take these deductions, you should be prepared to show the IRS the connection between the costs claimed and the charitable work performed.

Expenses qualifying for the child care credit

Working parents can find summer child care solutions challenging. However, a nonrefundable credit is available if the qualifying child care expense is incurred so that you (and your spouse, if married) can work. The maximum credit is 20%–35% (depending on your adjusted gross income) of the lesser of (1) your qualifying child care expenses up to $3,000 for one and $6,000 for two qualifying individuals or (2) your earned income (or your spouse’s, if less).

Qualified child care expenses provide for the well-being and protection of a dependent child under age 13 and must be reduced by the amount of any employer-provided dependent care benefits. Amounts paid for food and education generally are not considered work-related expenses; however, services that are incidental to and cannot be separated from the costs of caring for a child are not excluded from the credit. Therefore, expenses paid to a day care center are usually eligible for the credit, whereas summer school or tutoring expenses are not. The cost of day camp should qualify for the credit; however, overnight camps are not considered work-related and don’t qualify.

If you pay someone to come to your home and care for your dependent child, you may be a household employer required to withhold and pay Social Security and Medicare tax and pay federal unemployment taxes. Keep these rules in mind as you plan summer child care. Have more tax questions? Contact us.

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Getting around the $25 deduction limit for business gifts

Sometimes doing business entails making gifts to customers, clients, employees, and other business entities and associates. For numerous reasons, such gifts often make perfect business sense. Unfortunately, the tax rules limit the deduction for business gifts to a less-than-generous $25 per person per year — a limitation that hasn’t been raised in decades. When this limit was added into law back in 1962, the $25 gift deduction limit wasn’t really an issue for any but the most extravagant taxpayers. After all, the price of a first class stamp at the time was 4¢ and a 100% wool men’s suit could be had for $45 or less.

Fifty-two years later, the $25 limit is unrealistically small in many business gift-giving situations. Fortunately, there are a few exceptions to this rather restrictive limit. When one of these exceptions applies, you typically have no limit (or at least, a much higher limit) on the deduction for business gifts.

Here’s a quick rundown of the major exceptions to the $25 limit.

Gifts to a business entity vs. an individual. The $25 limit only applies to gifts directly or indirectly given to an individual. Thus, gifts given to a company for use in the business aren’t subject to the limit. For example, a gift of a $200 reference manual to a company for its employees to use while doing their jobs would be fully deductible because it’s used in the company’s business.

Gifts to a husband and wife. If you have a business connection with both spouses and the gift is for both of them, the $25 limit doubles to $50.

Only direct costs are limited. The incidental costs of making a gift aren’t subject to the limit. Thus, the costs of custom engraving on jewelry and the costs of packing, insuring, and mailing a gift are deductible over and above the $25 limit for the gift itself.

Gifts to employees. Although employee gifts have their own limitations and may be treated as compensation, an employer is allowed to deduct the full cost of gifts made to employees.

Gifts vs.entertainment expenses. Entertainment expenses are normally only 50% deductible and gifts, of course, are typically 100% deductible, but only up to the first $25 of cost per donee per year. In some situations related to gifts of tickets to sporting and other events, a taxpayer may choose whether to claim the deduction as a gift or as entertainment. The gift deduction is a better deal for lower-priced tickets, but once the combined price of the gifted tickets exceeds $50, claiming them as an entertainment expense is more beneficial.

As you can see, there are several exceptions to the $25 rule, so many businesses will be able to meet at least one of them. To the extent your business qualifies for any of these exceptions, it’s important that the qualifying expenses be tracked separately (typically by charging them to a separate account in your accounting records) so that a full deduction can be claimed.

Also, to obtain any deduction for a business gift, even the miserly $25 gift deduction, you must retain documentation supporting the following: (1) the gift’s cost and a description of it, (2) the date it was acquired, (3) the business purpose of the gift, and (4) the business relationship to the taxpayer of the person receiving the gift.

If you have any questions regarding the types of gifts or gift-giving situations that may qualify for a full deduction or how to properly isolate and account for them in your records, please call us so we can help you get to the right answers.

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Do you need to adjust your federal income tax withholding amount?

With over half the year already gone, now is a good time to check to see if you are on track to have about the right amount of federal income tax withheld from your paychecks for 2014. The problem with not having the correct amount of taxes withheld for the year is that:

  • If your taxes are significantly underwithheld for the year, you risk being hit with a nondeductible IRS interest rate penalty.
  • If your taxes are significantly overwithheld for the year, you are basically making an interest-free loan to the government when you could be putting that money to work for you.

Neither situation is good. The simplest way to correct your withholding is by turning in a new Form W-4 (“Employee’s Withholding Allowance Certificate”) to your employer. Taking this action now will adjust the amount of federal income tax that is withheld from your paychecks for the rest of 2014.

Specifically, you can adjust your withholding by increasing or decreasing the number of allowances claimed on your Form W-4. The more allowances claimed, the lower the withholding from each paycheck; the fewer allowances claimed, the greater the withholding. If claiming zero allowances for the rest of the year would still not result in enough extra withholding, you can ask your employer to withhold an additional amount of federal income tax from each paycheck.

While filling out a new Form W-4 seems like something that should be quick and easy, it’s not necessarily so — because the tax rules are neither quick nor easy. Fortunately, there is an online Form W-4 calculator on the IRS website at www.irs.gov that can help to make the job simpler. From the IRS home page, click on the “More …” link under “Tools.” Then click on the “IRS withholding calculator” link. You will see the entry point for the online calculator. It’s pretty easy to use once you assemble information about your expected 2014 income and expenses, plus your most recent pay stub and tax return.

Please understand that the IRS calculator is not perfect. (Remember, it’s free, and to some extent, you always get what you pay for.) However, using the calculator to make withholding allowance changes on a new Form W-4 filed with your employer is probably better than doing nothing, especially if you believe you are likely to be significantly underwithheld or overwithheld for this year.

Of course, if you want more precise results, we would be happy to put together a 2014 tax projection for you. At the same time, we can probably recommend some planning strategies to lower this year’s tax bill. Contact us for details.

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