There are basic qualifications that you should look for when selecting a tax preparer, for example are they licensed?  Is their license in good standing?  How long have they been in business?  But are the basics enough for you to know that you two are a match? 

My blind date was extremely intelligent.  We sat through lunch chatting about accounting, politics, the current health care system and hypnotherapy.  He definitely met my “basic qualifications” of being intelligent but was that enough?   As soon as we starting talking about the things we enjoy doing we were definitely different.  He is in a murder mystery book club and I take boxing lessons with my daughter. 

The basics are a good tool to search for your ideal match, but there is so much more you should be looking for when choosing your tax preparer.  Do they understand your type of business, profession, or industry?  Are they conservative?  Do they push the envelope?  What sets them apart from their competition?  And most importantly, how will they take care of you?  Are you just another client with tax forms?  Are they always looking for ways to help save you money on taxes?  Are they ASKING you the questions?

Just as you set high standards in your personal life, it is OK to have high standards when choosing your tax preparer.  You share an intimate relationship with your preparer.  You bare all.  If they meet your “basic qualifications” and nothing else would you feel comfortable putting it all out there?

After all of that I ask, are you and your tax preparer a perfect match?

Usually when we hate going “somewhere” it’s because we had a horrible experience – just like mine at the oral surgeon.  After reviewing the past few years of my new client’s taxes I could see why.  On average he was paying $75,000 a year with 2009 taxes being $95,000 – OUCH!

After sitting down with my client and his wife I began to ask them quite a few questions.  Just by putting together a simple tax plan they will be saving $30,000 in taxes a year!  The first question they had was “Why didn’t anyone else show us this?”  My response, “Why didn’t you question the amount of money you were paying every year in taxes?”  Their answer, “I just thought that was the way it was supposed to be.”

How high is your pain tolerance?  I know mine is pretty high. I also know if every visit to my dentist resulted in my having to have a root canal, I would start to wonder and get a second opinion.  Shouldn’t that be the same for your taxes?  Nowhere in the Sixteenth Amendment did I read that a taxpayer needs to pay tens of thousands of dollars in federal income tax so why is it the “way it is supposed to be”?

With my new client, I can’t erase all the painful memories he has seeing his old accountant just like my new dentist can’t erase my painful memory, however I am able to give my client new memories – saving $30,000 in taxes a year! 

Are you ready to end the pain?

Remember the “stated” loan? It’s also called the “liar loan” or the “loan that crashed our housing market”.  Actually the original intent of the loan was to help self-employed people whose tax returns took full advantage of tax write-offs and showed a bottom line lower than what would work for qualifying ratios for loan approval. Unfortunately it became so abused that W-2 wage earners where allowed to acquire a stated loan. When stated loans took this direction the stated loan became unreasonable and millions of under qualified borrowers received loans way over their ability to repay.

Today we have more and more people hanging their shingle as Companies keep making cuts and the job market remains fairly weak which is causing quite a dilemma. Stated loans have not come back and probably will not for a long long time (if ever). What should you know if you are starting your own business and will want to purchase or refinance a home? First of all, you will need to be in business for two years in order to qualify for a loan. Usually these are the hardest times for a start up business so be patient. If you are established in your business and want to refinance or purchase a home, you will need to sit down with your loan professional to review your taxes. If your debt to income ratios won’t work for current lending guidelines, your next step would be to visit with your professional tax preparer. 

Recently I worked with a client who was in this very predicament. A meeting was held with me and Monika Hengesbach, Enrolled Agent, whom specializes in small businesses and their owners. We were able to work a plan that would help my clients toward their goal of home ownership.

Here are some helpful hints that Monika shared with me that can steer you in the right direction to loan approval: 

Every tax season I get told the same thing, “I don’t want to pay too much in taxes, please help me.”  However, if you could be “tax savvy” and report more income for the first two years so you can have more tax write-offs and save more money on taxes for the next 30 years, would you?  Of course!  

For taxpayers who do not itemize their deductions they are entitled to a standard deduction.   For single filers, the standard deduction is $5,700 and for married filing jointly it is $11,400. Let’s say you purchased a $550,000 home, put down 20% and qualified for 4.375%, your itemized deduction would be $27,356.  This number does not include all the other items you are now entitled to claim as deductions:  State and Local taxes, gifts to charity, job expenses and certain miscellaneous deductions.  As you can see, your deductions would be $21,656 more for single filers and $15,956 more for married filers.  Talk about saving money on your taxes! 

A few areas that can be looked at when managing your business and preparing your taxes are: 

1. Depreciate your fixed assets vs. writing them all off in year of purchase.  Instead of taking 100% of the purchase price off in the year of purchase (Sec. 179) defer the payments over the life of the assets; 3, 5, 7, 10, 15, or 20 years.
2. Contribute to a self-employed SEP.  Contributions to a SEP are tax deductible and may be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan. 
3. Incorporate your business.  Sole proprietors pay tax on their net income on whatever their personal rate is; they also pay self-employment tax of 15.3% on the net income.  This is one of the reasons why I get asked “….help me”.  You will pay the same 15.3% self-employment tax on your wages but not on your net income. Depending on the structure you choose, the net income can pass-through to you which will help with your income qualification for home ownership.

In the spring of 2010, the Internal Revenue Service is now training revenue agents to gather information on facebook and other social media sites.  Revenue agents are NOT allowed to use false identities while searching social media sites to find interesting stuff out about a taxpayer.  Social Networks can help the IRS find the location of a taxpayer, uncover criminal enterprises and/or prove or disprove alibis.  Some people share a lot of information about their finances on these sites from employment to income.

The next time you decide to post on your Facebook page your amazing two week vacation to Europe and that cute Waterford crystal figurine you brought back with you please remember that not only will your friends be privy to that but so is your long, lost brother – IRS.

Doctors have been subjected to some intense economic changes. Over the years they have been faced with Medicare and insurance reimbursement cutbacks, and steadily increasing every year costs for malpractice insurance, billing services, nurses, administrative staff, physician supplies and record keeping systems. With all of these issues, practicing medicine doesn’t look as good, at least as a business. What can be done to stop the bleeding? One way is to become a “tax savvy” doctor. The following are 5 tips to get you on your way.

• Choosing your form of business wisely. You can conduct your medical practice as a sole proprietorship, a partnership, a personal service corporation or an S corporation. Which one is right for you?
• Consider leasing rather than buying. Equipment leasing could offer financing and tax benefits that purchasing does not have.
• Maximize your retirement. There are many kinds of plans to choose from. The plan you choose will depend upon what type of entity you are, the number of employees you have, and the amount of retirement income the plan must provide.
• Keep a good set of books. You don’t want April 15th to sneak up on you and you are scrambling to find all of your receipts. This kind of accounting could lead to costly mistakes in the form of missed deductions. Missed deductions lead to higher taxes!
• Knowing the true meaning of April 15th. The only work on April 15th is the filing of your tax return. The real work is done during the year – PLANNING. Planning is what makes April 15th a breeze.

Depending on your personal tax situation, implementing these suggestions as well as others could help stop the bleeding and put you on your way of becoming a “tax savvy” doctor.

The following is a brief summary of some tax mistakes that could cost you thousands:

1.        The Wrong Entity.  One of my favorite presentations I like doing is comparing tax returns for the various entities – Sole Proprietor, S-Corporation, C-Corporation and Limited Liability Company (LLC).  I have a profit and loss statement for the graphic design business of my ficticious client Rob Blind (this is what happens to you without proper tax planning) and then show how much each entity would pay in taxes or not and why.  It is truly eye opening yet it is often the last thing a real estate agent focuses on when they start off in their business.

2.       Hiring Family.  My daughter is a lot like my clients – she hates taxes and she definitely hates tax season.  When I would jokingly tell her she will take over the family business when she graduates from college she would break out in tears.  You could truly see the fear that she would be desdent to be a tax preparer for her whole life.  I certainly didn’t win parent of the year with that statement.  But imagine all that money we spend for soccer, swim lessons, college fund (in my case psychiatrist fund) with no tax beneft.  Wouldn’t it be great to pay our children for working in our company and then “they” pay for those expenses?

3.       Home Office Deduction.  How many of you have said “I don’t want to take a home office deduction because my tax return will have a higher chance to be audited”?  Ever since the .com era produced telecommuting, this deduction is far less likely to attract attention.

4.       Car and truck expenses.  Document, document, document.  How many of you take the standard mileage deduction vs. actual?  Would it be better to lease a car vs. buy?

5.       Meals and Entertainment.  Again, document document, document.  The rule is you can deduct the cost of meals (50%) with a bona fide business purpose.  How many of you entertain at home?  Do you discuss business?  Are you deducting the cost of those meals too?   You can deduct entertainment expenses if they take place before or after a bona fide business discussion.

6.       Tax Plan!  One of the biggest mistakes made is the failure to plan.

1. Did you choose the right structure?  You can conduct your construction business as a sole proprietorship, a partnership, a regular corporation or an S Corporation.  The form that you choose will have a direct impact on the amount of tax you pay.
2. Maximize Net Operating Losses.  A Net Operating Loss (NOL) from one year may be used to reduce taxable income from another year.  It can be carried back to a prior year resulting in a tax refund.  If the NOL was not completely used up in the previous two years prior to incurring the NOL then the remainder of the loss can be carry forward and applied against taxable income for up to 20 years.
3. Utilize the bonus depreciation.  On February 1^st, President Obama issued his 2011 budget and that included extending bonus first-year depreciation to apply to property placed in service in 2010.  What does that exactly mean?  You can write-off 50% of the purchase price of any equipment placed in service in 2010.
4. Hire a new employee.  This seems like an impossible feat when “jobs are down 38 percent since 2006” but as the saying always goes – “you need to spend money to make money” and why not do it in the year the Government is giving a tax credit up to $5,000 for new workers added in 2010, and for new employees who not employed for more than 40 hours during a 60-day period ending on the start date, the wages are exempt from the 6.2 percent employer portion of Social Security tax.

To identify and implement the tax strategies best suited to your situation, please contact us.

1. Failure to plan.  One of the most costly business mistakes a business owner can do is fail to plan.  So often we get wrapped up in what we are doing for our business before we know it January 1^st is here and we are now trying to locate all of our tax documents to file our return on time.  We know that our tax bill will be the same as it was last year and the year before that.  Why?  Because we always let the year go by without spending much time on planning.  If I could tell you that you could save 5%, 10% or 15% on your tax bill if you just spent the time to plan, would you?  Are you in enough pain to make that change?
2. Choosing the Wrong Business Entity.  Most businesses start out as sole proprietors and unfortunately stay that way for some time.  When I ask clients why they haven’t thought of incorporating I am told “my business isn’t that big” or “I don’t think it is financially feasible to incorporate because of how costly it is to do so”.  By choosing the right entity for your business, not only do you help protect yourself from business liability, there are many tax advantages too.
3. Good record keeping.  I can’t tell you how many times I get the new business owner who brings their proverbial shoe box to the tax appointment and puts it on my desk, very proud of themselves that they have so many receipts because surely they aren’t missing any.  And it never fails that I get the deer in the headlights look when I begin asking questions and the answers cannot be found in the shoebox.  Right there, that missed receipt or record is a missed deduction.  Every missed tax deduction is an increase in tax owed.  Just by having a good record keeping system, can save you hundreds on taxes.

And I think the most important one of them all:  NO MORE EXCUSES!  Yes, you can find the time to plan.  Yes, it is financially feasible to choose the right business entity.  And yes, you can make the time to keep good records.  And if you can’t find the time, hire someone who can.  A healthy business is a “fit” business.