Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

I love using tax rate planning when we can.  Tax rate planning comes into play in two primary situations.  

The first is when your business has grown from stability and has been expanding.

I call this the fat, dumb and happy rule.  When you are doing everything you want to do but the money you are making is simply being taxed at the highest tax rates, then it’s time to start looking at using tax rate planning to your advantage.

Most companies in their early stages are formed as S corporations and this is a good thing.  

Profits flow through to you personally and are taxed to you personally usually at lower tax rates in the beginning. However, when you begin to start making too much money, you money is taxed at the highest tax rates. Once this happens creating a different tax structure for your company can create some real tax advantages.  Simply put, if you change the nature of your tax entity, income up to 100,000 can be taxed at rates that are much lower than you would pay on the same income if you simply included that income on your personal return.

I was working with a client where we did just that. We change the structure of his company and his savings every year will now be in the hundreds of thousands of dollars.  I realize not everyone is in that position, however, what if it were tens of thousands of dollars EVERY YEAR! How good would that be?

The second type of planning involves family.  

Some family members may be in a lower tax bracket than other family members.  Of course, this works best when we are dealing with a family business or possibly real estate.  

The goal in this situation is to shift income from the family member who is making higher dollars and being taxed at higher rates to family members who are in a lower tax bracket, such as the children.

Before running headlong and implementing this strategy, you have to be careful of a crazy rule called the kiddie tax which is a rule dreamed up to cause passive income going to the children to be taxed instead to the parent’s or at the parent’s tax rate.  So much for income shifting.

Except, if the children are actually earning money then there are some great benefits and planning that can be done.

Thank you for being a part of our Straight Talk community.

Our goal is to educate, transform and inspire business owners and families in enhancing the way they think and talk about wealth in money, values, beliefs and traditions. If you would like to learn more or get together to see if these rules might.  

We welcome you to share your ideas and thoughts.

Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock-solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

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Are you a business or a hobby?

This question comes up often for taxpayers who have 2 or sometimes 3 activities some of which are making money and some of which are not.

How can a person run 2 or 3 different businesses and intend to make money in all of them?

If a business is not considered a business then it is a hobby.  If it is a hobby, whatever expenses are incurred can only be deducted up to the amount of income and not beyond.  This means most people want to treat their activities as a business so they can take deductions greater than their income.

But what is a business?

In the tax law, a trade or business is defined as a regular activity engaged in with a profit motive.  A hobby is defined as an activity not engaged in for profit. These seemingly simple definitions have spawned enormous amount of regulations and case law.

Some of the rules and principles relating to whether an activity is a trade or business or a hobby are summarized below.

If an activity actually makes a profit 3 out of 5 years, then the presumption that is was a hobby will not apply.  

This means that if you operate what you want to be a business for 5 years and you have a profit in three of these years, then the other two years you can have losses that can offset other income.  

While you may think this could be easy, i.e. just show 1 dollar of profit, it isn’t quite that simple.  The amount of profit in relation to losses, the taxpayers investment and the value of the assets used in the activity may all have a bearing on whether there was an intent to make a profit.

We all know the classic Mary Kay home based business used for the purpose of receiving office in the home deductions and losses.  This is a classic business versus hobby conflict.

Here’s a story of where losses were disallowed for Amway distributors:

An Amway distributor did not establish a profit motive where he made only three sales in the year in issue with a gross profit of $41, although he held numerous social events to recruit friends, relatives, and acquaintances to the Amway system for which he claimed $32,432 in business expense deductions.

Similarly, another Amway distributor failed to establish a profit motive for the one year at issue where gross profit was $627, additional bonuses of $1,516 were received from Amway, but expenses were $15,781. 15.1

9 factors that go into the consideration of whether there is an intent to make a profit:

1. The manner in which the taxpayer conducts the activity.
2. The expertise of taxpayer or his advisers.
3. The time and effort taxpayer spends on the activity.
4. The expectation that assets used in activity may appreciate in value.
5. The taxpayer’s success in similar or dissimilar activities.
6. The taxpayer’s history of income or losses with respect to the activity.
7. The amount of profits.
8. The taxpayer’s finances
9. The elements of personal pleasure or recreation

Here is where most people get into trouble.  

They are a full time employee receiving a paycheck and then they have what they call a side business.  

The problem arises in substantiating the number of hours spent on the business, networking, business cards, performing the services, accounting and the like.  I am not suggesting that this can’t be done as there are people who run side businesses after work and on week-ends, however there is only so much time in a day.

Showing how profit will be generated when working a full time job may be difficult.  

Coming back to the Mary Kay example, leveraging the downstream people to generate business and revenue is an example of how a person may show they have a business in addition to other work.

The point of this blog and the ones on mileage and charitable deductions hopefully is to point out that the rules are very complex, with many exceptions, nuances and traps.

There are opportunities for business owners to take advantage of the tax laws and having the right advice is critical.  

As I stated in my last blog I am trained as a tax attorney.  That means I have the legal experience and I have highly specialized tax training as well.  This means that when there is a tax question, I have the full understanding of the legal nuances, hidden meanings, rulings and interpretations of the case law.  It’s not enough just to hope and pray the IRS won’t exam your return. It’s what I can advocate on your behalf and prove.

Our vision is to enhance the way people think and talk about wealth not only in money, but in values, beliefs and traditions.  

Our mission is guiding people in Mastering the 5 Stages of Wealth.  Survival to make ends meet; Security for themselves and their family; Affluence by enjoying the benefits of the wealth created; Influencing others through one’s own clarity of purpose and vision; and Legacy of the impact and difference you can make in the world and how you will be remembered.

Thank you for being a part of our Straight Talk community.

Our goal is to educate, transform and inspire business owners and families in enhancing the way they think and talk about wealth in money, values, beliefs and traditions.  

What is your Legendary Future?  We welcome you to share your ideas and thoughts.

 

Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock-solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

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By the fourth quarter, doing tax planning is most likely too late.  

If you have some revenue that you can hold until next year that might help in pushing off tax.  If you can take some deductions that can help in reducing your revenue for this year and save some tax.  Beyond that, if you waited until now, there is not much that can be done.

My tax tip for those who have waited is to get an early start on your tax planning beginning with the start of the New Year.

What are your next year’s goals for revenue, for expansion, for sale?  

Whatever those goals, bring your professionals in early so they can be of the greatest value in structuring activities to take advantage of the laws.  Meet regularly, devise a plan, a strategy and tactics to implement the strategy.

Review what is working and not working.  Make revisions and provide yourself with the best chance to grow your business by design.

Our vision is to enhance the way people think and talk about wealth not only in money, but in values, beliefs and traditions.  

Our mission is guiding people in Mastering the 5 Stages of Wealth.  Survival to make ends meet; Security for themselves and their family; Affluence by enjoying the benefits of the wealth created; Influencing others through one’s own clarity of purpose and vision; and Legacy of the impact and difference you can make in the world and how you will be remembered.

Thank you for being a part of our Straight Talk community.

Our goal is to educate, transform and inspire business owners and families in enhancing the way they think and talk about wealth in money, values, beliefs and traditions.  

What is your Legendary Future?  We welcome you to share your ideas and thoughts.

Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

The days are getting shorter.  We have more to do. Where is the time?

There is no time like the present.  When it comes to year-end planning for your business, planning for taxes, planning for next year there is no time like the present.  

Once the year is over, from a tax perspective there is no planning.  It’s purely compliance. What did you do and now we have to record it.  That’s why the accountants are called bean counters. They count what has been done and they report it on the tax return.  And if the IRS comes a calling, the information and the actions taken have all been accounted for.

Occasionally, it is possible to take information and re-characterize it in a way that is favorable to you.  

Was the skin cream you sold as part of Mary Kay or that juice part of Juice Plus a business or just a hobby.  Were you really a real estate professional. Did you have to use your home for business and were you running a business or did you get a W-2 from your employer and that’s your income.  

One and done.

Here are some time-honored rules and principles.

Tax Saving Tip #1:

The new tax law should reduce people’s tax rate. That means that pushing more income into the current year and delaying deductions will benefit the business because there will be less taxes even on more income.   

Tax Saving Tip #2:

Look at your investments and sell some of the losers to offset the winners.

I know you will all get a kick out of this one.  Passive income and losses from real estate is different from than passive income and losses from investments.  Passive losses from real estate have medieval type rules to keep you from taking those losses to offset income from wages or a trade or business.  Worse yet, income from real estate can’t be offset by losses from stocks. Guess who made up these rules and the effect on you is take more of your money.

Tax Saving Tip #3

One I always like is if you drive in your business keep track of the miles you drive.  It’s a free one that the IRS gives you.

Think about it.  The IRS gives you about 50 cents per mile.  If you drive 20,000 miles you get a 10,000 deduction and it didn’t cost you anything other than the gas and repairs you would make anyway.  

Tax Saving Tip #4:

Last on the list is if you have your children working in your business there are some tremendous advantages you can use to save taxes.

Our vision is for people to have a legal that will make them proud. What better way to do this than to bring kids into the business where you can pay them, get a deduction and begin putting their money into investments that could turn them into millionaires when they are older. How good is that?

Thank you for being a part of our Straight Talk community.

We welcome you to share your ideas and thoughts.

Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock-solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

Is year-end tax planning on your list of “to-do’s” for your business?  If not, it, should be.

Many business owners become preoccupied with running their business and makings sales. They think by doing this everything else will take care of itself. It won’t and it doesn’t. In fact. Lack of tax planning can cost a business tens of thousands of dollars.

Tax planning put simply, is the process of looking at various tax strategy options to determine when, whether, and how to conduct your business and personal transactions so you can either reduce or eliminate your tax liability.

You might be thinking, why is tax planning so important?  

Like a sales strategy or improving the systems of the business tax planning are strategies designed to help you increase your revenue, increase your profit and increase your net profit. That’s priceless.  

Many small business owners ignore tax planning.

They don’t even think about their taxes until it’s time to file their taxes, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses and meet with your CPA or tax advisor on a continuous basis to analyze how you can take full advantage of the credits and deductions that are legally available to you.

Done right, tax planning can position your business for its best year yet.

Recently, I was working with a client who wanted to protect more of her money from being taxed. We set up a special structure called a defined benefit plan. This is a  more advanced structure but at its core she will be able to put away roughly 60 thousand dollars a year and it won’t be subject to any tax. That’s a lot of savings.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

• Reducing the amount of taxable income
• Lowering your tax rate
• Controlling the time when the tax must be paid
• Claiming any available tax credits
• Controlling the effects of the Alternative Minimum Tax
• Avoiding the most common tax planning mistakes

I recently met with a client who had been running his business as a sole proprietorship instead of a corporation. He had been doing this for years and his tax preparer never recommended the benefits of incorporating his business from a tax perspective. In one simple meeting, I showed him how he could save more than $12,000 per year EVERY year.

Right now is the best time to put some final touches in your planning and keep more of your hard earned money in your pocket where you can take advantage of it.

I am making a special offer to any business owners who want to shift their tax planning and preparation. With a tax plan, I will do their business return for cost only. Without tax planning, I will prepare the business tax return at a 30% reduction.

Act Now! Keep more of your money and have a 35 years tax attorney in your corner.