In Defense of Accountants – What Financial Gravity Learned This Tax Season

Those of you who have followed my years-long “adventure/nightmare/bad romance” with the accounting profession know that I’m not especially fond of this industry. In fact, most accountants who have encountered me would characterize my attitude as aggressively…, uhhh BAD. And really, who can blame them? I’ve built an entire business around the services that accountants don’t give their clients, and I haven’t been shy about faulting them for it.

ACCOUNTANTS OF THE WORLD, I AM REALLY, REALLY SORRY!!!!

So, I now set out to defend them. WHY?!? Well, now that I’ve experienced my first real tax season, “I feel your pain!” (said with full Bill Clinton accent).

First, a big-time mea culpa. You might think this is pain full for me, but it isn’t. A great friend said of me that “the most disconcerting part of your personality is that your passionately fight for a position, but when confronted with a logical counter point, you unceremoniously, and immediately acquiesce.“

With that . . .
ACCOUNTANTS OF THE WORLD, I AM REALLY, REALLY SORRY!!!!

How you have managed to earn the respect you enjoy with the disaster that is your client base, is truly spectacular.

This year, I’ve focused much of my time and attention on creating and documenting standardized procedures for Financial Gravity’s Tax Operating System® service that includes annual tax preparation. This has meant I’ve come dangerously close to day-to-day tax-prep work. And boy has it been eye-opening! Let me just highlight some of the “greatest hits” I personally experienced this year. Names have been changed to protect the “innocent” – but I assure you it all really happened.

“You have all my information.” (Or “you should just know.”)

  1. We should know the social security number, birth date ,and name from a post-it note, that was posted to a random 1099, for a client’s child. Also, we should know that it was a new child.
  2. “I talked to you a couple hours ago about the difference of $195 and $200 on ‘ABC’ (something that affects nothing as far as the IRS is concerned and makes a whopping $1 difference either way), was it changed?” I searched 45 minutes through multiple files averaging multiple pages each to find “ABC,” then called the client who berated me on our process and told me a word was spelled wrong and other things I personally fixed, but had zero impact on anything that was relevant. Also, “ABC” was the initials for something else, which I fixed in a couple of minutes while on the phone.
  3. CLIENT: “Why didn’t you include my estimated payments?” ME: “Did we do your books?” CLIENT: “No.” ME: ‘”did we do last year’s returns?” CLIENT: “No.” ME: “When did you become a client?” CLIENT: “Last month, on 3/15.” ME: “On the day business tax returns are due?” CLIENT: “Yes.”This client expected us to do the extension, clean up last year’s return, do this year’s return on a multi-million dollar business, ignore all the clients that came before him who have been loyal for years, and do it for the $300 he just paid us?” He fired us after a herculean effort, but we missed the “deadline.”Then he asked us to refund his $300!
  4. “You have it all, why isn’t it done yet?” Well, we just spent 2 hours reading everything, and hand keying it to double check. But there’s no 1099 for X, Y and Z. That form that had a number in it last year has no docs this year. I check again, I check the files, I check the everything. I send a letter, they give me a hand-written note and insist that it is everything. Except, of course, it isn’t and they insist I file it. I obviously documented everything but this will come back with “you should have known.”

Selective Amnesia, or “All you do is . . .”

  1. “I want a refund for the last year, because I’m not happy for this year and all you do is my taxes.” After research we found out that we set up multiple entities for free, creating thousands in savings. We did the tax returns for those multiple entities every year, when the contract called for one entity and one personal return. We delivered tens of thousands of dollars of savings every year due to the Tax Blueprint®, when the client claimed he never saw the Tax Blueprint®. We sent him over 40 files worth of information on all the stuff “we didn’t do.” And we did it all for less than an average CPA would have charged for just his tax returns every year.
  2. “This isn’t what I was expecting,” or some variation. Expectations are a funny thing: it doesn’t matter what we discussed or put in the contract, people fill in what they were hoping for. This shows up in any number of ways. They expect that they are the only client and so we can remember every detail about their situation. They expected something we don’t do and no firm does. They expect no taxes at all from our tax planning.
  3. “I thought you were supposed to save me taxes?” They triple their income and their taxes go up double – which is a HUGE win. But, the expectation is their taxes will go down no matter what the circumstances.

I have many more examples where tax professionals are undervalued, or they come to us with expectations straight out of the new Avengers: Infinity War movie. If you’re an accountant and you can relate to the stories above, share them! Don’t give us real names, of course (unless they really deserve to be doxed). But we want everyone to know what it is you deal with this time of year. If you have a story that “makes it all worth it” or you have a horror story that make what I outlined above look like child’s play, we want to hear it. We’ll compile the best for your amusement!

Email: stories@taxmasternetwork.com

P.S. Some of the illustrations above actually illustrate the holes in our process that we’ve set out to fill. I will deal with those successes in another post!

 

Why I Need to Know More about My “Corporate Entity”

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Why I Need to Know More about My "Corporate Entity"

Do you understand how your business is organized as an entity and how that affects the amount you pay in taxes? Do you know how the new tax code passed into law at the end of 2017 changed the way your entity is taxed? You may have organized your business structure in one way originally, but are you certain that this is still the most effective structure for your business?   Read more

Are Tax Mitigation Strategies Illegal?

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Are Tax Mitigation Strategies Illegal?

When it comes to the idea of tax mitigation, or the strategies of simply paying as little tax as possible, some might ask–are these strategies legal? The concept of avoiding paying tax might conjure up images of sleazy billionaires weaseling out of paying their fair share to the government. Read more

Proactive Tax Strategy vs Tax Preparation: What’s the Difference?

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If you are an entrepreneur or small business owner, having a good accountant is essential for the function and success of your business. You need someone to make sure your books are in order, and you have properly paid your taxes–in other words, good tax preparation. However, if you want help lowering your taxes, increasing your profits, and attaining greater wealth, you’ll need the help of a proactive tax strategy. Read more

10 Unseen Money Losers that Impact your Small Business Capital Gains

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10 Unseen Money Losers that Impact your Small Business Capital Gains

You’ve got a small business, and it’s finally starting to turn a profit. Your capital gains are rising, and things are looking good. But you’re not out the woods quite yet. There are still multiple ways you can lose money and reduce your capital gains.

Overall, to keep more of what you make, you need to minimize your tax liability. As a small-business owner without a huge accounting department or in-house financial advisors, you’re going to need all the help you can get.

For example, one big area where you might find yourself losing out is through capital gains tax. When you sell capital assets (investments such as real estate and stocks) through your business the difference between the amount you paid for the assets and the amount you sold them for is considered a capital gain or loss. When capital gains are involved, you owe capital gains tax. Effective capital gains management leads to a smaller tax bill, which means you have more working capital and better cash flow.  Capital gains tax directly affects how small-business owners deal with assets, which makes proper handling of this tax issue important. Any slip-ups in dealing with capital gains can cost small-business owners valuable tax dollars and result in substantial legal and accounting fees.

10 Unseen Money Losers That Impact Your Capital Gains:

  1. Not holding on to capital gains for at least 12 months. Short-term capital gains refer to assets that are sold within one year of when they were acquired, and these are taxed at a higher rate than long-term gains. The capital gains tax rate for short-term capital gains is taxed at the ordinary income tax rate, which can be up to 39.6 percent for 2018. Long-term capital gains apply to assets held longer than one year and generally result in a lower tax. In fact, the current top rate for long-term capital gains is 20 percent in 2018 and can be lower, depending on the tax bracket. Due to these substantial differences in tax rates, it is beneficial to refrain from selling an asset that is going to result in a gain 12 months after you have received it so that the gain will be taxed at the lower rate.
  2. Not taking advantage of installment sales. This method of reporting for a non-dealer is available if at least one payment is to be received after the close of the taxable year in which the sale occurs. The taxpayer can then defer the gain as payments are received in subsequent years. Basically, if you can arrange for an installment payment for capital to have at least one payment to come in after the close of the year, you can defer capital gains tax on it until the following year.
  3. Not offsetting capital gains with capital losses. If you have excess capital losses of up to $3,000, they can be deducted against ordinary income, and remaining capital losses can be carried forward indefinitely.
  4. Whether a capital gain is considered capital property or dealer property. Capital property is generally held for investment, whereas dealer property is usually meant for sale. If you are considered to be a dealer in an asset, it will be considered inventory, and capital gains tax treatment won’t be available. Remember: intent is everything. Dealer property versus capital property is the subject of much litigation throughout the history of the tax courts, so much care must be exercised in determining the character of the asset being sold.
  5. Not doing a Section 1031 exchange. This involves purchasing a “like-kind” piece of property within 180 days of the sale of another. It must be property held for investment or used in the trade or business. The basis and debt of the new property must equal or exceed the basis and debt of the property sold. This law provides the opportunity to defer gains until the subsequent year.
  6. Not deferring eligible deductions. You might choose to use Section 179 deductions instead of regular depreciation for assets. Section 179 deductions can’t produce or increase a loss and will carry over to next year.
  7. Not carrying over losses one year forward. Losses in one year can optionally be carried forward to a subsequent year. If your business has a net operating loss of $20,000 this year, you can use that to offset a gain of up to $20,000 in a subsequent tax year. In this way, you can still have a business that’s profitable in one year, (meeting the IRS’s guidelines of showing a profit three out of five years) yet keep the tax advantage from the previous loss. Profit or loss from business is not limited to one year.
  8. Not taking advantage of business losses that are not deductible in the year when you have the loss. You may be required to, or choose to, deduct these losses in past or future years. It is called a tax loss carryback or loss carry forward, and — it’s something with which you must get a tax professional to help.
  9. Not structuring your business the proper way. This may be the single most overlooked aspect of tax planning. Most businesses that start out small don’t change the structure of their business when they should. For example, if you have a closely held company in which the income passes through to you, the owner, those are usually set up as an LLC or an S corporation. While there is nothing wrong with those structures, you might be able to gain tax advantages by structuring your company as a C corporation, in which the first $50,000 of your income is taxed at a rate of 15 percent as opposed to a 35 percent rate if you’re in the highest tax bracket.
  10. Not being proactive about your tax plan. One of the best ways to maximize the benefits of a business loss is to be proactive. You need to look at your business throughout the year and make decisions based on your tax situation. In some cases, making some last-minute purchases can put your business into a state of loss, especially if you’re just on the cusp of profit or loss from business. For example, if you have income from another source, you can also use that business loss to offset your tax burden and keep yourself in a lower tax bracket.

The Tax Blueprint which Financial Gravity’s team members can help you create is that proactive tax roadmap that you can use throughout the year to guide your business tax decisions.

 

So how can you avoid those money losers and put the tax code to work for you? Call one of our Financial Gravity team members today and make an appointment for a free tax assessment: Let’s Talk!

Let's Talk - 10 Unseen Money Losers that Impact your Small Business Capital Gains

3 Investment Strategies That Financial Planners Employ That Make or Break Small Business Growth Potential

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3 Investment Strategies That Financial Planners Employ That Make or Break Small Business Growth Potential

Running your own small business isn’t easy. Your capital might be low and you’re wondering how to pull together enough resources to keep afloat, let alone figure out how to grow your business.  Although it would be ideal, you really can’t run a business on your skill and sheer determination alone. Good news–even small businesses can adopt an investment strategy that helps grow capital if done right. If your business finances are feeling a little thin, or you just want to plan ahead and strategize for growth, it might be time to consider investing. Here are 3 investment strategies financial planners employ that can be the “make or break” for small businesses: Read more

How our Strategic Assessment Meeting Ensures Your Tax Savings Success

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How our Strategic Assessment Meeting Ensures Your Tax Savings Success

 

Just like anyone else, you want to save money on your taxes, whether it’s for your small business or personally. But how can you ensure your tax savings success? One way is to set up a plan for what you do with your taxes. But what should your plan be? And how do you set it up?

Pull up a chair: Financial Gravity would like to invite you to a strategic assessment meeting. Read more

How does the IRS view the Stormy Daniels hush money?

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What does the IRS think of Stomy Daniesl hush money? How should Trump's attorney classify the payment?

Some people spend their whole lives grasping for the white-hot spotlight of fame. Others avoid it like the plague. Still others work to stand out in their field, only to make headlines for entirely different reasons. Porn “star” Stormy Daniels clearly falls into that third group. The 38-year-old performer excels in her craft, with spots in the Night Moves, Adult Video News, and X-Rated Critics Organization Halls of Fame. But despite all that hard work, she’ll go down in history for taking $130,000 in hush money to cover up an affair with the President.

(Of course, “Stormy” isn’t the name her parents gave her. Her real name is Stephanie Clifford, which makes her sound more like a debutante than a girl who started stripping at age 17 – “introducing Stephanie Clifford, of the Main Line Cliffords . . . “)

Politicians and pundits are feverishly debating exactly how and why that money wound up in Stormy’s account. Did the President or one of his associates secretly foot the bill? Is it an illegal campaign contribution or campaign finance violation? Will it find its way into Special Counsel Robert Mueller’s investigation? But really, who cares about that stuff? We want to know what the IRS thinks!

What does the IRS think?

The Tax Code defines gross income as “all income from whatever source derived,” and there’s no section excluding payoffs from presidential candidates. So it’s pretty clear that Stormy’s windfall is taxable. (Minus legal fees, of course. “Hush Money for Porn Stars” isn’t a required law school class – for most schools, it’s a third-year elective. Still, only the best lawyers have that particular expertise under their belts.)
The real question is: how is that windfall taxed? Is it ordinary income? Or could it be capital gains? And what difference would that make?

Most tax professionals would probably include the income in Stormy’s business of being a porn star. If that’s the case, it’s taxed as ordinary income at marginal rates of up to 37%. It’s also subject to self-employment tax, unless Stormy has organized her business as an S corporation and paid herself a reasonable salary to cap that particular liability.

Treat the Property as a Capital Asset!

But there may be another way to skin this particular cat. The settlement agreement itself provides that Stormy is actually selling her rights to certain information and “property.” So why not treat the “property” as a capital asset? In that case, considering the story grows out of an affair that took place in 2006-07, it would be treated as long-term gain, and tax would be capped at 20%. The gain would also be subject to a 3.8% net investment income tax if her adjusted gross income tops $200,000.

Now, what about deducting the payment? If the President’s personal lawyer is telling the truth when he suggests that he paid out of his own pocket, then he can plausibly deduct it as an expense of his law practice. The attorney also claims he originally pulled the cash out of his personal home-equity line of credit, which means he can deduct the interest he pays, too.

Want a free book on the new tax law?

Here at Financial Gravity, we confess we have no experience whatsoever with tax planning for hush money. But we’ve helped business owners just like you save thousands on their taxes. We also just created the first book we are aware of on the implications of the new tax law. The New Tax Law book doesn’t just walk through you the new rules. We explain how to take advantage of the most powerful strategy for paying less tax. And that strategy is planning, proactive planning (not the reactive planning most people do now, which doesn’t work) and most important, strategic tax planning!

How do you get your FREE copy of The New Tax Law? Schedule a FREE assessment call  today with a Financial Gravity Tax Team Member and we will deliver the book to you for FREE. We will even cover shipping, or hand deliver it to you when possible. Schedule your FREE assessment today, get a free book and stop wasting money on taxes you don’t have to pay!

5 Ways to Save Big on Taxes for Your Small Business

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5 ways to save big on taxes for your small business

The IRS tax code actually provides many ways for small business owners to save big on their taxes–ways that many of which business owners may not be aware. Here are just five:

Lease Your Home to Your Business for the Maximum Time the IRS Allows

Your home has to be rented for less than 15 days to get the deduction. For example, if you have a board meeting every month, you could host all 12 in your home and claim the deduction. You must also rent your home at a fair rate. The IRS does not allow you to just make up an arbitrary amount to charge your company when you rent your home to your business. It must be commensurate with the average price you would pay to rent another location. You must also issue yourself a 1099 form from your company with the total rent amount paid, which you will then claim on your personal taxes. This will be offset once you list your less-than-15-days deduction. Don’t forget: you must record the minutes of any meetings you have in your home–this will provide further proof to the IRS of the validity of the business conducted there if it is called into question.

Hire Your Children to Work in Your Business as Spelled Out in the IRS Code

A business owner can hire and pay their own child under eighteen tax-free. As long as your child is doing legitimate work and getting paid a reasonable rate, you can pay them up to $6,300 per year before they have to pay a dime in income tax. However, you may still have to pay payroll taxes such as FICA and FUTA, which go towards unemployment and social security benefits. On the other hand, you don’t have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse. But if your business is a corporation, you must pay payroll taxes on income to your children. Even in this last case, there may be workarounds, but these are best discussed with a professional tax advisor.

Change Your Health Plan to a Qualified HSA Plan to Save the Most Taxes Possible

HSAs escape taxation by allowing holders to save tax-free money for medical expenses not covered by insurance. Contributions are made into such accounts by employees and/or employers, and unused funds roll over from year to year. The contributions are invested, earning returns over time, thanks to the power of compound interest. Funds can be removed tax-free to pay for qualified medical expenses, including vision and dental. HSA deposits (from an employer or individual) are federal income tax-free and not subject to employment taxes. Secondly, HSA growth from income and investment appreciation is not subject to federal income taxes. Finally, if the HSA funds are withdrawn for qualified medical expenses by the account owner, spouse and/or dependents, such withdrawals are not subject to federal income tax. There is no other place in the tax code which allows ordinary income to escape federal taxation forever. But of course, you have to know the HSA rules and follow them carefully. This is another case where it would be good to consult a tax advisor to help you create the best plan for your business and unique situation.

Maximize Retirement Savings to the Fullest (If You’re Over 50 Chances Are You Are Not)

There are many legal ways to maximize your retirement savings and lower the taxes you pay on them. For example, you could start a diversified retirement plan–the funds will help cut down your tax bill now and grow tax-deferred until you make withdrawals in retirement. In most cases, the cost of opening and administering a plan is pretty small. The four main options for small business owners are a SEP-IRA, a SIMPLE IRA, a Solo 401(k) and a SIMPLE 401(k). For all but SEP-IRAs, a business can be a sole proprietorship, a partnership, a limited liability company or a corporation.

Start a Private Foundation

Establishing a private foundation is a great way to use family funds and property tax-free, all while engaging in charity. However, under the IRS Code, a not-for-profit is not exempt per se from federal income tax. In fact, a private foundation is fully taxable unless and until it applies to the IRS for recognition of its status as a tax-exempt organization; even then, it may lose its tax-favored status if it fails to file annual tax returns with the IRS.

It pays to do your homework–consulting with a tax or financial planner can greatly help with setting up tax savings strategies properly. Find out more about how you can bring on a financial advisor who will truly assist you in not only saving on your taxes but give you a solid plan for the future. Speak today with a Financial Gravity team member, Let’s Talk!

What Is the Tax Blueprint and Why Should I Care?

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What Is the Tax Blueprint and Why Should I Care?

It’s safe to assume that most business owners and individuals are overpaying their taxes without even realizing it. Without a clear tax plan to guide you through the year, you’re probably one of them. That’s why Financial Gravity created its unique tool known as the Tax Blueprint in order to help its clients navigate the complex maze of the tax code. Read more