Recent changes to federal laws and increased IRS scrutiny have prompted South Florida accountants to advise clients on smart financial practices. The Affordable Care Act and American Taxpayer Relief Act of 2012 have resulted in higher taxes for some. The IRS is also closely examining overseas bank accounts and claims of dependents. Accountants recommend establishing retirement accounts, investing in municipal bonds, and taking advantage of an IRS voluntary disclosure program for overseas accounts to reduce penalties. Meanwhile, overall mortgage lending has declined nationally due to increased regulations, though some local lenders have seen annual gains of 10% due to personalized service.

1. BANKING & FINANCE
WEEK OF THURSDAY, JULY 10, 201418 MIAMI TODAY
Ratehikesforinflationseemfaroff
Pocketsofgaindefyhit
sockingmortgageloans
Home Financing Center sees 10% annual gains, said VP John Allen.
Legalshiftsalteraccountants’advice
BY LIDIA DINKOVA
The overhaul of some federal
laws as well as amped up scru-
tiny by the Internal Revenue Ser-
vicehavepromptedSouthFlorida
accountants to advise their cli-
ents on smart saving practices
and thorough recordkeeping.
The recently implemented Pa-
tient Protection and Affordable
Care Act as well as the American
TaxpayerReliefActof2012may
mean smaller tax return totals or
higher taxes for some taxpayers.
And,aftertheIRSsolidifiedits
relationships with some foreign
banks, the agency is to give tax-
payers a grace period to declare
overseas accounts before the IRS
combs through records to find
such accounts. The IRS is also
closely scrutinizing records to
make sure filers have been truth-
ful when declaring dependents.
“Tax law is constantly evolv-
ing, and there still might be
changes to come,” said Eric E.
Santa Maria, director at Coral
Gables-basedPaulA.GarciaP.A.
Nowhere is this more evident
than with the American Taxpayer
Relief Act of 2012. Last tax sea-
son,thetaxrateforthehighesttier
of income earners increased to
39.6%, a 4.6 percentage point
rise. The new rate applies to an-
nualincomeshigherthan$450,000
for joint filers and surviving
spouses; $425,000 for a house-
hold head; $400,000 for single
filers and $225,000 for married
taxpayersfilingseparately,accord-
ing to Mr. Santa Maria.
He advises his clients to invest
part of their income in retirement
contributions, such as a 401K.
The tax on that income is de-
ferred until the money is with-
drawn.
“When you are talking about
high-income earners, some of
them own their own businesses,
so they might not have that at
play. So it’s a matter of establish-
ing those retirement vehicles,”
Mr. Santa Maria said.
As part of the 2012 act, the top
tier earners also paid a rate of
20% – or five percentage points
higher – on capital gains and
dividends for 2013.
Investment advisors often
come in to advise such clients.
Some of their suggestions: con-
sidermunicipalbondsasawayto
allocate investments.
“The only problem with that is
that it might not earn you as
much income as the ones that are
taxable,” said Mr. Santa Maria.
“But people who are conserva-
tive and are in it for the long term,
they might want to diversify their
portfolio.”
With the recent federal
healthcare overhaul, uninsured
taxpayers who didn’t sign up for
insurance in the marketplace will
be paying a penalty.
“It’s going to be a penalty that
getsaddedtoyourtaxliability,so
you either owe more money or it
reduces your refund,” said
Jonathan Ingber, a certified pub-
lic accountant at downtown Mi-
ami-based Kwal + Oliva.
The penalties will grow pro-
gressively each year but won’t
exceed a dollar threshold, which
is set at $95 for 2014, $325 for
2015and$685in2016,Mr.Ingber
said.
“So the penalty is going to be
lowthisyear,andyoungerpeople
may decide based on whatever
the premiums are to pay the pen-
alty rather than to pay the pre-
mium,” he said. “But eventually
it’s going to be more costly as we
go beyond 2014.”
Another warning accountants
aregivingtheirclients:TheIRSis
dotting its T’s and crossing its
I’s.
“The IRS, as you can tell, they
are a little low on money,” said
Senen Garcia, founder, owner
and president of Coconut Grove-
based Garcia Tax Enterprises.
That may be why it is homing
in on overseas accountholders as
well as on truthfully declaring
dependents.
“From now on, whenever an
individual wants to claim a de-
pendent… it’s no longer just
meeting the five dependency
tests,” Mr. Garcia said. “They
need to provide evidence of the
five dependency tests.”
Now, a social security card
and a birth certificate have to be
supplemented with school
records,medicalbillsandreceipts
showing the taxpayer claiming
the dependents is, indeed, taking
care of that person.
“These people existed where
youwouldhaveanindividualwho,
let’s say, had enough depen-
dents…Theywouldselladepen-
dent to a friend, and they would
work out a deal. Supposedly, this
was a rampant issue,” Mr. Garcia
said.
Finally, while taxpayers have
always been required to disclose
overseas bank accounts, the IRS
has recently been homing in on
undeclared accounts held by US
taxpayers.
So South Florida accountants
havebeenadvisingclientstotake
advantage of an off-shore volun-
tary compliance program – if a
taxpayer declares his previously
undeclared overseas account,
some of the penalties may be
reduced.
“Let’s say you earned money
in 2010, you are going to have to
amend your 2010 tax return.…
The interest is not going to be
negotiable,” Mr. Garcia said.
Added Mr. Santa Maria: “The
fact that they [the IRS] are com-
municating with these foreign fi-
nancial institutions has made it
kind of an issue for people who
never thought twice about not
disclosing.”
BY LIDIA DINKOVA
To help the US emerge from
the recent economic recession,
the federal government has for a
while subdued interest rates.
John Cosculluela, CEO and
president of Miami Lakes-based
full-service mortgage lender
AmericanBancsharesMortgage,
told Miami Today that inflation
was at 2.1% between May 2013
and May 2014, according to data
released in June by the US gov-
ernment. That’s lower than the
2.5% rate that the federal gov-
ernment has said needs to be
achieved – along with an unem-
ployment rate of less than 6% –
to prompt it to increase interest
rates.
“In other words, we are still at
a recession,” Mr. Cosculluela
said. “The economy is still per-
forming below the Federal
Reserve’s expectations.”
Assumingthattheinflationrate
increases – along with interest
rates as a result – it’s likely that
economic growth might be hin-
dered.
“Rising interest rates will slow
down the consumer sector of the
economy,” said Jim Fried, man-
aging director at Miami-based
real-estate brokerage and invest-
mentfirmAztecGroup.“Youare
spending it [money] on interest
instead of spending it on the
washing machine.… There will
be less discretionary income be-
cause they are spending it on
interest costs.”
Interest rates rise as inflation
does because to make a profit, a
bank includes in its interest rate a
core rate – or how much it needs
to make a profit – as well as a rate
that’s adjusted for inflation.
A rise in interest rates could
potentially hurt banks as well,
Mr. Cosculluela said. If banks
have to adjust for higher interest
rates, then demand for borrow-
ing would fall.
“That is how a bank makes a
living – by lending money,” he
said.“Abankdoesn’tmakemoney
unless it lends money.”
There is one sector that would
profit from an increase in infla-
tion: commercial real estate.
“Commercial real estate is a
safe haven when interest rates are
rising. Why? Because they are
physical assets,” Mr. Fried said.
The standard in commercial
real estate leases is to negotiate
annualpaymentsthatwouldcom-
pensate for rising inflation.
Ultimately, however, the con-
sumer would end up paying the
extra cost, Mr. Fried added.
SouthFlorida’sboominghigh-
end residential real estate indus-
try, namely condominiums
springing up on prime waterfront
property, probably wouldn’t be
impacted by an increase in inter-
est rates because most condos
are bought with cash.
LaneDeCost,seniorvicepresi-
dent and director of investments
at Coral Gables-based Gibraltar
Private Bank & Trust, said part
of what could be contributing to
the present drag on consumer
spending are the disruptions in
the Middle East, which might
increase transportation prices in
the future, as well as an ongoing
drought in our western states,
which has increased the cost of
fruits, vegetables and beef.
“Most economists, and the Fed
[Federal Reserve], view such in-
creases as transitory,” Mr.
DeCost said. “They also act as a
drag on other consumer spend-
ing, potentially sapping strength
fromotherareasiftheeconomy.”
Mr. DeCost added that the Fed-
eral Reserve has indicated that it
won’t begin to raise interest rates
until mid-2015 at the earliest.
Photo by Maxine Usdan
BY LIDIA DINKOVA
Whilemortgagelendingingen-
eral is lower than pre-recession
and even recession times, pock-
ets of South Florida companies
are exceptions to the rule.
In 2014, industry experts pro-
jected about $1 trillion in mort-
gage loans, down 73% from the
2003 record levels, according to
the Mortgage Bankers Associa-
tion, a national membership or-
ganization representing the real-
estate finance industry. That’s
also lower than the $1.5 trillion
and $2 trillion in loan origina-
tions the association reported
for 2008 and 2009, respectively.
John Cosculluela, CEO and
president of American
Bancshares Mortgage, said the
decline in mortgage lending
might be because of increased
government regulations on the
industry as a response to the
lending climate that led to the
recent financial crisis.
“It’s difficult to get a mort-
gagebecausetheregulationshave
made it more difficult for lend-
ers to extend credit,” he said.
Signed into law in 2010, the
Dodd-Frank Wall Street Reform
and Consumer Protection Act
made sweeping changes and
placed regulations on the finan-
cial industry.
A regulation known as the
‘Ability to Repay and Qualified
Mortgage Standards’ calls for
borrowers to show they can re-
pay a mortgage loan.
“In prior boom years, a lender
could be relaxed when qualify-
ing a borrower’s ability to repay,
could be more lenient and use
compensating factors such as a
large down payment as a com-
pensating factor that would al-
low a bank to lend money to that
borrower,”Mr.Cosculluelasaid.
As a result of the regulations
and decrease in lending, some
banks are merging.
“Because the cost of regula-
tionistooburdensome...somany
smallcompaniesaremerginginto
largecompaniesthathaveecono-
mies of scale,” he said.
Coral Gables-based mortgage
lender Home Financing Center,
however, is an anomaly from
the general trend.
“We’ve had a very, very prof-
itableyearsince2010,”saidJohn
Allen, vice president of opera-
tions. “It depends whether you
are talking to a direct lender like
us or to a broker. I think brokers
were hit a lot harder.”
Home Financing Center has
been issuing mortgages at an
about 10% average rate of in-
crease annually since 2010, Mr.
Allensaid.
That, he said, is partially due
to highly personalized service
thefull-servicelendingfirmpro-
vides.
“We are seeing a move away
from the big banks as far as
mortgagelending.…Wearesee-
ing people are going back to the
community banks, to the local
credit union,” he said. “Putting
names to faces – that’s always
been important. It’s always been
key to our success, and I think
it’s just increased in importance
since then [the recession].”
A borrower who takes a loan
at Home Financing Center, he
said, works with the same cus-
tomer service representative for
the duration of the loan’s life.
In addition, while brokers is-
sue mortgage loans by shopping
for and securing the loans from a
third party, such as a bank or a
mortgage lender, Home Financ-
ing Center works with the bor-
rower for the loan’s duration.
“If something goes wrong,
it’s incumbent on us – we have
to pay the taxes, we have to
maintaintheproperty,”Mr.Allen
said.
Despiteanomaliesinmortgage
lendingtrendslikeHomeFinanc-
ing Center, the Mortgage Lend-
ers Association projects only a
slight increase in mortgage lend-
ing nationally next year com-
pared with the $1 trillion re-
ported for this year.