TaxCoach Briefs:    May 22, 2008

Volume 3, Number 21

TaxCoach Briefs archives.

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SPOTLIGHT ON STRATEGY (EAL)
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HELP YOUR CLIENTS WITH GAS PRICES

Last Thursday was moving day for my family. We spent most of last week packing and most of this weekend unpacking, so we're pretty well settled. My two-year-old Oliver loves his new basement playroom, and he's already got it arranged to his liking. (Picture London, during the Blitz, and you'll have a good idea.)

One of my favorite things about the new house is the easy drive to work. MapQuest tells me it's 8.3 miles from work to home. (Keith's trip is even shorter -- just 6.01 miles.) And I pass three gas stations on the way. That's three chances to see how much money I'm not spending on a long-ass daily commute.

As I began this article Tuesday morning, oil had just topped $129/barrel. As we prepare to launch today's Briefs, it's over $135. Predicting oil prices now is about as much fun as sticking your hand in a blender -- but it's safe to say they aren't coming down any time soon.

How can you as a tax advisor help your clients handle those costs? Even better, how can you use the price spike to strengthen your relationship as their trusted advisor?

We're all familiar with the basic rules for car and truck expenses. Clients can choose to deduct actual expenses, or take a mileage allowance currently set at 50.5 cents/mile. Many of us look at these as essentially equal choices. But with oil prices quadrupling since we invaded Iraq, making the right choice is more important than ever.

Just how realistic is that 50.5 cent/mile allowance? Well, the first problem is that it's the same for every vehicle on the road. It just makes sense that a client driving a big honking SUV gets less out of the allowance than a client driving a Prius -- even after factoring in the weight of the "Mean People Suck" bumper sticker plastered on the hybrid. The second problem is that it's just inadequate for today's gas prices, no matter what the vehicle. The American Automobile Association's recent survey, Your Driving Costs (2008) reports the following costs for different vehicles:

Those figures assume driving 15,000 miles/year. Clients who drive fewer miles actually pay more per mile because they amortize fixed costs like depreciation, financing, and insurance over fewer miles. (Years ago, I had a client who bought himself a classic Porsche to celebrate his success in real estate. He drove it just 3,000 miles the first year he owned it -- but 1,000 of those miles were for his business. He was able to amortize his fixed costs over so few miles that he wound up deducting nearly $2/mile for his business use of the car!)

The AAA figures also assume clients pay just $2.941 for a gallon of gas. Under three bucks! It's stunning to think we'd look back on $2.941/gallon gas with fond nostalgia -- but if you could sell your clients gas that cheap, they wouldn't care how much they pay in tax!

The sad reality is that the mileage allowance is completely inadequate for many of your clients. And the difference between actual expenses and the allowance can be substantial. Let's say your client drives a full-size SUV 15,000 miles for business. If her actual cost is 80 cents/mile, choosing actual expenses boosts her deduction by $4,425. If she's filing schedule C, that cuts her income and self-employment tax.

The same analysis applies for wage earners as well as self-employeds. Most clients who deduct employee business expenses on Form 2106 just take their employer reimbursements and call it a day. But they can also use the actual expense method to calculate their costs, subtract their employer reimbursement, and deduct any remaining difference. This can be a great way to squeeze out extra miscellaneous itemized deductions if they aren't subject to Alternative Minimum Tax.

Now, the IRS can certainly increase the mileage allowance. Back in 2005, it started at 40.5 cents/mile -- then jumped to 48.5 cents as gas prices spiked in the wake of Hurricane Katrina. But even that sort of adjustment lags behind market spikes, and most are likely to fall short of actual costs.

Here's the bottom line. Rising gas prices let you reinforce your value to your clients by helping them make the most of their deductions. You can even score points with clients who are already using the right method, just by reassuring them they're not missing anything.

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CLIENT ALERT (EAL)
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HELP YOUR CLIENTS WITH GAS PRICES

We've just issued a new Client Alert to help you reinforce your value by helping clients with soaring gas prices. As always, the goal is to motivate them to call you for help.

When you click on the 'Client Alerts' button in TaxCoach, you'll see a list of alerts, with this latest on top. The file 'gasprices4.doc' contains letters addressed to each of your clients whose TaxCoach records indicate they own a business or incur unreimbursed employee business expenses.

You can download the file to your system, and print on your letterhead using MS Word, or any word processor which supports Rich Text Format ('RTF'). You'll find instructions on the Client Alerts page.

As always, whether or not your clients are materially affected by these changes, hearing the news from you reinforces the value of your service and your relationship. Feel free to call us if you have questions.

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UPDATED CONTENT (EAL)
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MORE HELP FOR GAS PRICES

The American Automobile Association has issued the 2008 edition of their annual survey, "Your Driving Costs." We've updated the table in the strategy module entitled "Make the Most of Car and Truck Expenses" to incorporate the new figures.

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NEW TOOL (EAL)
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ACCOUNTABLE EXPENSE REIMBURSEMENT PLAN

Several of you have asked for a template "Accountable Expense Reimbursement Plan" document to use with clients who reimburse themselves or their employees out of their businesses. So we've created one, in Microsoft Word, that you can pass along to clients or customize yourself.

The template includes three parts:

You'll find the new tool in the TaxCoach "Forms and Templates" section under "Document Templates in Microsoft Word."

Do you have an idea for a document template you'd like to use? Let us know! Many of our new tools come from subscriber requests, and we're always looking for ways to make the system work harder for you.

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TAXCOACH "SPRING TRAINING" (KAV)
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DEADLINE NEARS FOR ROOM RESERVATIONS

Ed and I get more excited every day as the TaxCoach "Spring Training 2008" draws near. Tuesday afternoon, we ate lunch "on site" with our event coordinator, and met with the hotel conference staff for some final decisions on space and meals.

We don't have a formal deadline for registering. (We'd rather hear from you at the last minute than see you miss the event.) But there is a deadline for room reservations, and that's June 1. The special room rate, which includes breakfast, will still be available after June 1 -- but only if space is available.

Subscribers, you should have received two mailed invitations, one in late March and one with your first TaxCoach Lineup. If you're not a subscriber, or you don't have a copy handy, click here to learn more about the Boot Camp.

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SUBSCRIBER Q & A (KAV)
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Q: I read your article about the MERP and it is a great idea. But I have a practice that caters to retirees and pre-retirees. How can your service help me maximize what I do for this group? Please advise

A: Thanks for your inquiry. We’re always grateful for the opportunity to blow our horn! But we don’t do ourselves any favors if we sign up subscribers who ultimately have no use for the system.

TaxCoach is best used with clients whose returns are complex enough to profit from planning. We find the three most valuable target markets to be: 1) business owners and self-employeds; 2) real estate investors; and 3) clients managing taxable investment portfolios. That last category includes your clientele, and one of our seminar kits is even focused on retirees specifically.

The planning software includes a couple dozen modules on selecting tax-efficient mutual funds, buying and selling them efficiently, merits of Treasury and municipal securities, and similar issues. About half of our subscribers offer financial planning services, as you do, and we find those modules complement their business very nicely. In fact, many of our FP subscribers use tax planning as an introduction to financial planning services, since it has a more immediate benefit. (Ed's a former Registered Representative and Registered Investment Advisor himself, so we're familiar with the marketing and regulatory environment that planners face.)

We offer new subscribers the first 30 days for free, so you can test the system and see first-hand how it works for you. Let us know what you think!

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We're happy to answer your questions on TaxCoach content, features, marketing, or general taxation. While we give first priority to our TaxCoach All-Stars, we work to answer all questions. For best response, email support@taxcoachsoftware.com. If we can't answer immediately, or we think the answer will be useful to all of our subscribers, we'll publish it (anonymously) here in the 'Subscriber Q & A' section of TaxCoach Briefs.

Regards,

Ed Lyon
Keith VandeStadt

www.taxcoachsoftware.com
(513) 321-2820

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