TaxCoach Briefs:    June 5, 2008

Volume 3, Number 23

• Spotlight on Strategy: Summer Job Solution
• TaxCoach "Spring Training": Boot Camp Update
• "MVP" Membership Incentive: Beat the July 1 Price Increase
• Subscriber Q & A: Switching from Mileage Method

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SPOTLIGHT ON STRATEGY (EAL)
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SUMMER JOB SOLUTION

The New York Times recently reported that the 2008 job market is shaping up as the weakest in 50 years for teenagers seeking summer work. (Welcome to the real world, kids!) But you can help self-employed clients create real savings by hiring their kids for the summer or for the entire year.

With summer on the way, let's review the rules so you can be a more valuable resource for those clients:

• Wages you pay to children (or grandchildren, and even parents) are a deductible business expense if you pay them to perform bona fide work for your business and you pay them reasonable compensation for that work.
• Your child can earn up to the standard deduction for single taxpayers ($5,450 for 2008) before they owe regular tax on their income. The next $8,025 is taxed at just 10%. Earned income is not subject to the "kiddie tax" for children under 19, or dependent full-time students under 24.
• The Tax Court has approved payments to children as young as seven years old. Several commentators have suggested paying children under that age to model for your marketing materials -- but that is untested, and would require you to determine a "reasonable compensation" for that work. (Better have an awfully cute kid!)
• Your child's work should be directly related to your business.
• "Reasonable compensation" is an amount that would be similar to amounts paid for similar services by similar businesses under similar circumstances -- with adjustments made for the employee's age and experience.

To verify your a child's employment, keep a timesheet showing dates, times, and services performed. Pay your child by check (to verify payment from the business) and deposit the check in an account in the child's name (to verify payment to the child). This can be a Roth or regular IRA, Section 529 College Savings plan, or even a custodial account where you manage funds yourself.

You can't use funds from a custodial account for obligations of parental support. However, private and parochial school, summer camps, and similar "extras" aren't considered "obligations" of parental support. So you've got lots of places to put those wages besides your kids' "pizza and Nintendo" fund.

If your business is taxed as a proprietorship or partnership (and, in the case of a partnership, you and your spouse own all of the partnership interest), no FICA is due on your child's wages until they turn 18. No FUTA is due until they turn 21.

Hiring family members creates obvious tax savings by shifting income to lesser-taxed children. But it also lets you establish employee benefit programs, like the Section 105 Medical Expense Reimbursement Plan and Education Assistance Plan, on their behalf.

Hiring kids should be a key year-round strategy for your clients. You'll find a complete "Hire Your Kids" Implementation Guide on the TaxCoach "Forms and Templates" page, under "Implementation Guides." You'll also find 105 Plan and Education Assistance Plan templates should you wish to establish those benefits.

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TAXCOACH "SPRING TRAINING" (KAV)
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BOOT CAMP DRAWS NEAR

Our TaxCoach "Spring Training 2008" is less than three weeks away. We're polishing our presentations and -- you'll love this -- we've added a "bonus session" which where Ed will roleplay selling a tax-planning fee, with word-for-word running commentary on how to do it.

With the bigger hall we've still got some space, but time is running out! It's too late to take advantage of the discounts for advance payment and early registration, but we can still ease the sting of gas prices. If you haven't yet registered, and you're within driving distance of Cincinnati, we'll buy your first tank of gas! The $72 discount will cover 18 gallons (sorry if you're driving a Hummer!).

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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"MVP" MEMBERSHIP INCENTIVE (KAV)
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Since we launched TaxCoach, all the way back in May 2005, we've worked with hundreds of you across the country. We've added new modules, new tax tools, new marketing materials -- most recently, a mailed monthly newsletter, the TaxCoach Lineup. We've proven the concept of planning-based marketing. We've grown from the industry's only "plain-English tax-planning software" into a true business development system. And we've created a national community with our All-Stars Mastermind Group and upcoming "Spring Training 2008" Boot Camp.

Adding benefits necessarily involves adding costs, such as additional staff, equipment, and printing and postage costs. In order to continue the level of service that a comprehensive personal coaching, business development, and planning software system like TaxCoach deserves, our subscription rates will be going up marginally. Effective July 1, 2008, the new rate will be $69 per month.

But you can still keep the current price -- and get nearly four months free -- by switching to annual "MVP" membership.

The annual rate is always a good deal, getting you 12 months for the price of 10. That's still true at the new rate of $690 which starts July 1. But, if you upgrade to "MVP" membership by June 30, you'll still get the current rate of $590 -- which means that right now, you'll get the next 12 months of TaxCoach for just a little over the price of 8. That's almost 30% off the monthly rate!

If you're already an annual subscriber, you'll get the discounted $590 rate automatically with your next renewal. "MVP" means we take care of our best subscribers!

Interested? Call us at 513-321-2820, or email support@taxcoachsoftware.com . We'll contact you to set up the details.

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SUBSCRIBER Q & A (EAL)
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Q: Sometimes you guys make me feel like a first year tax preparer. Am I missing something on the mileage discussion two weeks ago? I thought once you choose mileage expense, you were stuck with that on that vehicle until it is disposed.

A: I certainly don't want you to feel like a beginner – but I don't want you to miss opportunities for your clients, either!

The rule is that you can switch from mileage to actual expenses if you've bought the vehicle – but not if you've leased it.

You can theoretically switch from actual expenses to mileage, but only if you haven't claimed accelerated depreciation. I've never seen that work in practice.

Rev. Proc. 2002-61 has the discussion.

Thanks!

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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,

www.taxcoachsoftware.com
(513) 321-2820

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