TaxCoach Briefs:    January 21, 2010

Volume 5, Number 3

• Spotlight on Strategy: S Corporation Update
• Client Alert: Haitian Relief
• Testimonial of the Week: $11,000 in Planning Fees
• Did You Know: Customizable Summary Report
• Member Resource: Member Call-in With Ed and Keith

****Attention All-Stars and Press Club members ****: The playback for Tuesday's webinar is now available on the All-Stars page. Our topic was Time Management — taking a fresh look at ways to make the most of your limited resources as we head into busy season. The mastermind discussion was particularly lively, so we've also posted the questions log along with the playback. You'll find them in the Resource Center (red) on the All-Stars page, within TaxCoach. Our next monthly webinar is Tuesday, February 9. If you're not an All-Stars or Press Club member, click here for more information.

TaxCoach Briefs archives.

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SPOTLIGHT ON STRATEGY (EAL)
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S CORPORATION UPDATE

Since Keith and I launched the weekly Member Call-In last October, we've seen certain subjects appear over and over. While most of the questions revolve around TaxCoach marketing, we've also answered various technical questions. And by far the most popular questions involve the Section 105 medical expense reimbursement plan and strategies for S-corporations.

We're all familiar with using S corporations to minimize employment tax. But how aggressive can we be? How far can we cut our clients' employment tax? The question is more important now as the IRS begins taking a harder look at S-corps.

According to IRS figures, the "average" S corporation delivers approximately 41.5% of its economic benefit to shareholders in the form of salary and the remaining 58.5% in the form of K1 distributions. Of course, that's just an average, and covers a lot of different circumstances. Former Presidential candidate and famed philanderer John Edwards organized his law practice as an S-corp four years before joining the U.S. Senate, paid himself a salary of $360,000, and avoided over $562,000 in Medicare tax during those years.

The key to paying "reasonable compensation" is to determine how much comparable employees are paid by comparable corporations to perform comparable work. Unfortunately, neither the internal revenue code nor treasury regulations offer specific guidance for determining "reasonable compensation." That leaves practitioners like us scrambling to do the job:

• In some cases, you can use industry averages and surveys. In my personal practice, for example, I established S-corps for real estate agents, and used average salary figures from the National Association of Realtors as a starting point.

• You can find salary data online at places like http://www.salary.com/.

• Or you can simply ask your client. In one case, I did a plan for a hair salon owner who paid himself a $95,000 salary to "zero out" the profit from his C-corp. I recommended switching to an S-corp, and asked how much he would have to pay a manager to replace himself. He told me $45-50,000, and eventually settled on a figure in that range.

These questions will become more important as Washington starts taking a closer look at S corporation issues -- especially those involving shareholder compensation. The General Accounting Office just released a report, Actions Needed to Address Noncompliance with S Corporation Tax Rules, revealing several areas of concern:

• For starters, 68% of S-corps filing returns for 2003 and 2004 misreported at least one item. 80% of those errors favored the taxpayer.

• 13% of S corporations paid inadequate wages to shareholders. The smallest corporations, those with 1-3 shareholders, were the worst offenders.

• Several options exist for closing that "wage gap." They include making all S corporation income subject to employment tax, making all service business income subject to employment tax, or making all active shareholder or majority shareholder income subject to employment tax. Of course, these changes would require legislation -- and Congress has shown no great appetite for changing S corporation income rules.

Because the S corporation is such a popular strategy for TaxCoach members, we'll be keeping a close eye on these issues. And remember that TaxCoach gives you several resources for presenting S corporations to your client. These include a TaxCoach strategy module, an Implementation Guide (which you'll find under "Forms and Templates"), and a PowerPoint mini-presentation (which you'll find in the Playbook under "Seminar Kits").

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CLIENT ALERT (EAL)
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TAX BREAKS FOR HAITIAN RELIEF

The recent earthquake in Haiti reminds us all to count our blessings. Even in today’s lousy economy, Americans are finding ways to give generously to ease the disaster.

We're preparing a new Client Alert with information on charitable deductions for earthquake relief. As these Briefs go to press, the House has just passed legislation letting taxpayers treat cash donations for earthquake relief, made before March 1 of this year, as having been made in 2009. We're waiting to see how this legislation progresses before releasing the actual alert -- and your clients will appreciate you showing that you're doing the same.

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MEMBER TESTIMONIAL OF THE WEEK (KAV)
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Dear Ed & Keith,

TaxCoach Software helped me to close three cases, for total revenue of $11,000.

Project analysis: 26 letters mailed, 4 incoming calls, 3 appointments, 3 sales, 6 hours invested (includes driving time). Average hourly earnings = $1833.00

Thanks for a great system!

Greg Dalpe,
Family Financial Network, LLC
Alta Loma, CA

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DID YOU KNOW . . . (KAV)
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CUSTOMIZABLE SUMMARY REPORT

. . . TaxCoach lets you download the Summary Report into MS Word or other word processor? This feature lets you add your own formatting, as well as edit the text, prioritize the highlights, add emphasis and other notes, etc..

The summary report is so important as a discussion document, or as a 'teaser,' that tailoring it specifically to a single client can really help your sales and delivery efforts. Turn the advice you've always given away for free into a planning engagement that rewards you for the value you bring to the client! The client will appreciate it, too.

On the Reports screen, under the orange 'Generate Summary' button, just check the box entitled 'Format:DOC' and save the file to your computer when you click on 'Generate.'

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MEMBER RESOURCE (KAV)
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MEMBER CALL-IN WITH ED AND KEITH

Had to miss the call-in this week myself, but Ed tells me it was awesome. Seems we had the usual good attendance and varied topics, but this week we had a particular focus on clients not implementing our tax advice — over a dozen follow-up comments from different participants! Typically we don't show much of the follow-up comments in this column, but we left it all in this week, so you could enjoy the lively discussion.

Here's an excerpt of questions and comments raised by callers this week, straight from the call log:

• Taxpayer is a lawyer, operating the business as an S-Corp. Including himself, the S-Corp has 4 employees. How can a MERP be set up to solve this problem situation?
• I'm not quite sure how being a real estate professional is different than being a real estate dealer in that each is decided on a property by property basis. So if I'm classified as a dealer for a piece of property it doesn't have any tax ramifications if I am a RE Pro or not? Am I missing something?
• Do you have any experience with any member marketing tax palnning service to doctors market segment.
• Considering asking our commercial clients w/ recurring monthly billing to let us "draft" their business bank acct via an "ACH." What do you see as "pros" and "cons" of this plan?
• I have led a horse to water, and they won't drink. What do you do about a client that can't or won't implement my tax advice? Tough to prove my value if they won't form an S-Corp or contribute to a SEP to save over $15k per year. They seem to always have an excuse for NOT acting proactively. How would you handle?
  • Tell them if they are not going to implement, you are going to have to resign...ask why are you paying me for advice and not taking it...
  • When a client doesn't listen to you, write down your notes, and then go on to the next client. Don't waste any more time on dead deals. You never know when they will come back. I have been working with several clients for five years to get things to happen.
  • For the non-implementer - has he run a sample tax return to show the client how the savings occurs?
  • Kind of have to question the client relationship..obviously they don't value your advice, or maybe are getting conflicting advice from someplace else
  • Do the reverse of Eds seperate return. prepare a what if return showing them the tax savings they are throwing away.
  • for the client who won't commit to your tax planning ideas... ask him why he won't commit to the planning ideas. Why won't he decide to take your suggestion. Ask him what it will take to get him to decide/act practively.
  • Resolve that you're not going to influence everyone. People are complex creatures whose behavior is not really predictible; human behavior can't be explained. Bottom line: most people will respond as expected, but some will not and we will never really know why. It's a game of numbers--get enought prospects and you will close enough. I once saw a person spend over $1million to defend himself against a $200,000 lawsuit--go figure. This person was clearly not rational.
  • Horse to water issue - shift the context "So being able to save enough to cover 5 months of mortgage payments or a year of college tuition, isn't important to you?
  • Appreciate the inputs everyone, thanks!
• Spoke last Wednesday @ Seniors Luncheon & used Tax Coach Retirees Power Point module. Picked up 4 new tax cleints. Thnak you. Was subsequesntly asked to speak @ a "Teachers' group.
  • Teachers tend to be spouses of business owners and are a great source of referrals (my wife is a teacher and I get alot of work through her network).
  • For teachers, would they be better off to donate the supplies they buy and get a letter from the school for the donation rather than having to take the balance over $250 as a 2% misc.
• Joint venturing spoke about a planner coming to a CTC with boatload of their clients returns for the CTC to do a T. R. diagnosis. How could/would I do that for my clients (without violating confidentiality). What would I necessarily look at and/or bring to a F.Planner to see if a specific client would be a good candidate for them?
• That was an amazing call. Thanks!

If you're looking for clarification on tax strategies or profiting from TaxCoach too, join us for the next call, on Wednesday January 27, at 1pm Eastern. Enter a question or just listen in on the repartee. Check the "Contact Us" button within TaxCoach for registration instructions.

While we are happy to answer questions on TaxCoach marketing, concepts, and strategies, we can no longer continue to analyze detailed case studies. Specific client scenarios generally involve detailed factors outside our knowledge, and we have determined (along with our attorneys at Crane, Poole, and Schmidt) that we aren't comfortable addressing those scenarios. Unfortunately, we're just not set up to act as an "on the fly" research service. (If you're looking for that sort of support, take a look at the Certified Tax Coach™ program.)

Members occasionally ask if we can record and archive these calls. The answer is that we want to keep them as informal and uninhibited as possible. For example, we’ve discussed outside tax software and marketing services (both good and not-so-good), and we don’t want to put ourselves on record with those comments. Member Call-Ins are intended to be casual discussions among peers – and we don’t want recording them to threaten that chemistry.

While our elite members (All-Stars, Press Club, and Hall of Fame) can still schedule time directly with Ed as part of their coaching programs, we simply cannot answer marketing and tax-strategy questions via email or unscheduled calls.

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We can answer questions on using TaxCoach system features anytime. (Save marketing and tax strategy questions for Member Call-Ins.) For best response, email support@taxcoachsoftware.com. If we think the answer will be useful to all of our members, we'll publish it (anonymously) here in the 'Member Q & A' section of TaxCoach Briefs.

Regards,

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