|
TaxCoach Briefs: June 3, 2010
Volume 5, Number 21
****Attention All-Stars and Press Club members ****: Our next webinar will be on Tuesday June 8 at 4pm Eastern. We'll be taking a page from Keith's book to focus on "Getting Stuff Done," with an analysis of action goals that attendees at this month's SuperTable set out for themselves. Watch for agenda details and connection instructions on the All-Stars page and in The Scout. ===================================================== MARKETING LESSONS FROM THE TITANIC The TaxCoach system outlines literally hundreds of deductions, credits, loopholes, and strategies that you can present your clients to cut their taxes. But since we launched just over five years ago, two strategies have consistently stood out as most popular: the Section 105 plan to deduct family medical bills as business expenses and the S corporation to minimize employment tax. Clients hate paying self-employment tax. Hate it, hate it, hate it. Maybe it's because they know the tax goes towards financing Social Security - and they know better than to plan on retiring on Social Security. Whatever the reason, your self-employed clients just detest paying that tax. For me, then, it's always a pleasure to review a tax return that includes a Schedule C where an S corp would be appropriate, then smile and tell the client "the way you've organized your business is costing you thousands of dollars of employment tax you just don't have to pay." Now comes word that the S-corp employment tax loophole is under fire - at least for one class of clients. House Resolution 4213 started life as the Tax Extender act of 2009. As such, it included what you would expect - provisions extending tax deductions for educator expenses, college tuition, and similarly favored expenses. Along the way, though, it morphed into the "American Jobs and Closing Tax Loopholes Act of 2010" - and when Washington comes right out and announces they're out to close loopholes, well, it's time to reach for your wallet! Section 413 of the bill addresses employment tax treatment of professional services businesses. Specifically, effective January 1, 2011, it imposes self-employment tax on S-corp distributive income that meets the following two tests:
I know what you're thinking. You'll put 96% of the corporation's shares in your client's spouse's name. (No, the bill includes family attribution rules extending the tax to shares owned by spouses, parents, children, and grandchildren.) Or you'll reorganize the business as a limited partnership. (Nope, it also extends self-employment tax to limited partner distributive shares.) The proposed rules upend decades of established law. Watching Congress gut the current rules is like seeing Al and Tipper Gore split up. (Hey, if those crazy kids can't make it, who can? And why did they wait so long to split? Were they waiting for the kids to die or something?) Clever planners will certainly test ways to work around the new rules. What, exactly, do "brokerage services" include? Do "professional services" include commission income? How do you define "expertise and reputation" for the new rules? Of course, the new rules won't affect S corporations operating outside the professional services arena. And S corporations still offer advantages besides minimizing employment tax. For example, they dramatically lower audit odds relative to filing Schedule C. HR 4213 passed the house on May 28 by a close 215-204 vote. The Senate is currently in recess and is scheduled to take it up when they return on June 7. It includes controversial provisions extending unemployment benefits and COBRA subsidies, and passage isn't guaranteed. We'll be watching closely ourselves to bring you this rarest of tax "breaking news." But the writing's on the wall. The iceberg is visible ahead. And we can't just sit around waiting for it to hit like the Titanic. (Did you see that movie? Didn't work out so well for them, did it? If you didn't see it, the boat sinks and the hero dies. There - you can thank me for saving 4 hours of your life.) We'll obviously keep a sharp eye on this. We anticipate issuing a Client Alert as soon as the final legislation becomes law. In the meantime, don't sit around and wait. Talk with your "professional services" clients before the bill passes. Even if you can't stop it, you'll score valuable points helping them feel empowered and letting them know you're already looking for alternatives. And talk with your S-corp clients who are not professional services businesses to reassure them that they're still safe. You'll score points with them by letting them know you're looking out for icebergs too. You may even find this a marketing opportunity. If you're like most TaxCoach members, your best clients come from referrals. And your best referrals come from clients who know you're keeping an eye out for them. ===================================================== At the SuperTable in New Orleans, during the mastermind session we asked everyone to share their "killer idea" — the one thing they'd done to improve their business that was successful beyond all others. "My best idea is TaxcCoach — the software, Press Club, the masterminding — there’s nothing like it. Best money ever spent." ===================================================== MEMBER CALL-IN WITH ED AND KEITH This week's call had "The Goodness" as usual, again with as many attendees as last week, and "burst mode" questions in the log that kept us hopping. We covered a variety of topics but there was particular interest in the looming S corp rule changes. Calls are generally held each Wednesday, however please note there will be no call on June 9. If you're looking for clarification on TaxCoach strategies or additional ways to profit from TaxCoach, join us for the next call, on Wednesday June 16, at 1pm Eastern. Enter a question or just listen in on the repartee. Check the "Contact Us" button within TaxCoach for registration instructions. 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. ===================================================== 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. Regards, Ed LyonKeith VandeStadt http://www.taxcoachsoftware.com/ (513) 321-2820 TaxCoach SuperTable Certified Tax Coach™ TaxCoach All-Stars TaxCoach Press Club TaxCoach Closely-Held Insurance Company TaxCoach Cost Segregation TaxCoach Briefs archives . . . |