Take The Money Unless the Cost is Over 101%

I know the headline sounds a little crazy but let me set the stage for you.  I had a client today that had a couple of 1099’s he received from a manufacturer of a product he sells.  He had rightly reasoned that regardless of the tax he had pay on the money he was money to the good.  Here is where the story takes a strange turn.  A peer of his had the same opportunity to receive the same type of incentive but had chosen not to take the extra money due to the tax implications.  Worse yet, his taxpreparer had told him it was a waste of time to take the money because of the taxes it was costing him.  My client had a great analogy on taking the money.  If I give you a $100 and then you have to give me $50 in return will you take the money or consider it a waste of time?  I am glad to know that my client was smart enough to grasp the concept.  I am embarrassed that anyone giving out that kind of advice can somehow find enough client’s to stay in business.  If you have received this kind of advice come on over to the light.  I am here and ready to help you keep more of what you earn.

Put Your Kids To Work in Your Business and Save Money!

Hiring your children to help you in your business is a smart tax planning strategy.  The IRS says that children under 18 are not subject to social security, medicare taxes, or FUTA taxes.  The State of AL says they are exempt from SUI until they are 21 and the same applies to FUTA.  They are subject to Federal and State income taxes but a little planning can make sure you don’t exceed certain threshold amounts which would create the need to file a federal or state tax return.  For some it may even be worth the filing for the tax savings.

For 2015 you can pay your child up to $11,800 (standard deduction equal to earned income up to a maximum of $6,300, plus $5,500 deductible IRA contribution) without either of you incurring a tax liability. That’s because reasonable wages you pay to your minor child to work are fully deductible as a legitimate business expense, lowering your gross income.  For your child, the standard deduction and IRA contribution eliminates all of the tax on the child’s income. And since the money was earned, the “kiddie tax” doesn’t apply even if your child is under age 18.  Note the term reasonable wages. This is not a cheat its a legitimate tax saving opportunity and a great learning opportunity for your child.

How much you save in tax by doing this is dependent upon your tax bracket. If you are in the 28% bracket and you maxed it out as shown above you save $3304 in income tax plus another $1552 in net self employment tax. That is is $4856 is tax savings for the parent doing this for one child. Note that your child could have some state liability with this strategy if you reside in a state that has income tax. There are lots of moving parts in this strategy so consult with a CPA to make sure you know all the ramifications.

QuickBooks Payroll Quirck

I recently ran into a little Quickbooks quirck so I thought I would give you a warning.  When I archive something on a computer my expectation is that if I need it I will be able to pull it up and use it.  When processing W-2’s I archive them inside Quickbooks.  I can see a link to them so I have always believed that if I needed and old W-2 for an employee I could just pull it up and print it.  No need to store nasty paper documents for 3 years because I do a great job of backing up my data and if I need it I can get it.

Well here is my latest discovery.  Quickbooks uses an image of a blank W-2.  The data that goes on the w-2 is archived but the image is an active file an is update from year to year.  So, if you need to print a 2015 W-2 in 2017 because an employee approaches you and has lost the original you can’t do it.  You will have the correct data for the 2015 W-2 but the image that it pulls up will be 2016 form W-2.

For me that is not a real big deal because I always have back years of pre printed W-2’s.  I also have the software to use the archived data so I can reproduce a lost or misplaced W-2 for an employee.  But most folks don’t have the software or the forms just laying around so if you have relied on those archives you may have a problem.  My recommendation is keep a copy of the employee W-2’s on paper for a minimum of 3 years.  That way if you need it you will have it.

Maybe the guys at Intuit have never had an employee lose a W-2 in a future year.  I doubt there are many employers that have not had a similar request at least once.  Maybe we can get the programmers to give a choice or maybe we can get them to create a real pdf archive that does not depend on their W-2 image file.  I’m not holding my breath.

Talk About Creepy

Any of us that have ever shopped online and then gotten on Facebook to find them sending targeted ads has been a little creeped out. Well yesterday I got a whole new creeper experience. My wife was shopping on her I-Pad for a particular item. I log on to Facebook 10 hours later and receive a targeted ad to an item that local vendors do not stock which she was shopping. So I ask Jason Nunnelley, he knows such things, and he tells me it is Double Click. If you want to know about Double Click just Google it. If a simple product can do this what do you think Governments of the world know about you and I? It’s big time creeper.

The Facebook Experiment is Dead

I abandoned this web site about 3 years ago and began posting the same type of information on Facebook.  My intent was to allow Facebook to be my primary web presence.  I quickly gained a following and established a pretty decent distribution on my post there.  So I continued to post and everything seemed fine.  Then Facebook changed the way they distributed post to the users and my reach per post was reduced by 75% or more.  I first sought to recover that distribution by getting folks to like and or share the articles.  It does work but it is very time consuming.  Unless you write something that strikes a big nerve, and get several shares from folks you don’t even know, distribution even among the people that like your page is sparse.  Unpaid big distribution rarely happens.  Turns out most folks are content to take care of their own tax situations and other than telling a friend “I use Barry Thompson and you would probably benefit by using him too” they don’t spend that much time sharing good tax advice.  That is a major problem on Facebook for me.

I recently discovered another major reason to keep this sight up to date with fresh content.  When I maintained this site on a regular basis by adding new and interesting content I was at or near the top in most major non paid advertising categories for CPA’s in Cullman, AL.  When I stopped and began doing most of my sharing on Facebook I lost that placement in the search engines.  Bottom line is I lost online marketing visibility by forgoing my website in favor of Facebook.

I am sharing this with you for two reasons:  1.  I made a terrible decision that cost me money.  I want those of you who will to learn from my mistake.  2. I am letting you know that I will be keeping this site updated on a regular basis.  I will continue to share on Facebook to some degree but I will focus most of my efforts on this site.  I love to get questions from you and share the answer publicly.  I don’t use your name unless you want it that way so feel free to ask.  If you have the question chances are many others do as well and everybody gets a chance to increase their knowledge.  Knowledge about taxes and minimizing them legally is what I am all about.

In closing I want to say that I do not think Facebook is dead by any means.  It is not the best way to build your web presence and benefit from the time it takes to share information with people.  I have some ideas on how to use Facebook for my best benefit by integrating with things I post here however control over your asset is the best policy.  Jason Nunnelly told me this more than once but I didn’t learn from his wisdom.  Be smarter than me.  Learn second hand from Jason and from my experience shared.

IRS Debt

You can hear the commercials on most any syndicated talk radio show in America. The pitch goes something like “Settle Your Debt With The IRS For Pennies on The Dollar”. Is it possible? Yes it is. It happens all the time.  But there are many factors that determine when an IRS debt can be settled.

The method used to settle debt for pennies on the dollar with the IRS is called The Offers in Compromise Program. It is a program offered by the IRS so that honest taxpayers can settle debts that they can not afford to pay. Let me reiterate. The program that can be use to settle debt with the IRS for “Pennies on the Dollar” is called the Offers in Compromise Program. It is designed for honest taxpayers to settle debt that they can not afford to pay.You have to be able to prove that you lack the ability to pay in order to qualify for this program.

Don’t let someone tell you they can settle your debt that is unaware of your ability to pay according to the IRS formula. The IRS has it’s own formula in arriving at whether a person can qualify for an offer and their definition of ability to pay is rarely the same as the taxpayer’s.

Many of the companies that are in the business of soliciting people to settle their IRS debts will make unrealistic statements and guarantees that they can not deliver. The name of the game is to prey on the taxpayers fear of the IRS and to get the taxpayer to pay for services now.  They will even go as far and tell the taxpayer that “You have already proven that your a procrastinator and you don’t need to let this go any further. Your problems are only going to get worse if you don’t make this decision right now”.

This is a pressure tactic to get you to commit your money to them before they have any idea whether they can provide you with any substantial help or not. Don’t get me wrong. If you have past due taxes you do need to get started solving your problems. But if the people you are talking with have not taken the time to learn about your income, your assets, and liabilities they have no idea if you will qualify for the Offers In Compromise program. Be wary of making any monetary commitment to a person that is promising to help but asking you very few questions about your financial status. Chances are they are not going to help you in the end they just want to get your money while you are scared.

When we take on an IRS Problem Resolution Client we usually ask for $500-$1000 to get started in the determination process of whether a taxpayer can qualify for the Offers In Compromise Program. We advise the client that we are making a determination if an Offer is appropriate or if a payment plan is the proper course of action. As well as an estimate of total fees depending on our determination. We require the deposit to pay for our time in assisting the client in gathering and organizing the financial data needed to make a determination on the clients ability to pay according to the IRS. Then we advise the client on our findings and the proper way to proceed with the IRS debt.

Any other methodology has a high chance of being a scam and the people that pressure the taxpayers to get them to commit money are potentially crooks. You should do your homework to determine the reputation of anyone that requires prepayment.  However, those of us who do IRS resolution work would be foolish to perform the work without some payment up front.  We are typically working for clients that are only dealing with their problem because they are being forced to act by the IRS.

Finally, I would never suggest that anyone pursue an offer without professional assistance. Taxpayers have rights and you need someone that knows your rights to protect you. Look for someone that you can trust by getting recommendations from people you personally know or ask for references and check them out before handing over you hard earned dollars.

I originally posted this article on February 2, 2008. I did so because I was dealing with my third client that had been duped by one of these organizations. I did not know that many state Attorney General’s were upset with their marketing message, subsequent failure to perform, and in pursuit of a remedy. I have attached a pdf file of an article produced by Web CPA on June 18, 2008. The group in this article is not the only offender but they are probably the most well known which is probablly why they started with them. It basically supports my article.  You should read it for yourself.

Ant and Grasshopper

THE ANT AND THE GRASSHOPPER
This one is a little different…. Two Different Versions…………….. Two Different Morals

OLD VERSION

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.

The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away..

Come winter, the ant is warm and well fed.

The grasshopper has no food or shelter, so he dies out in the cold.

MORAL OF THE STORY: Be responsible for yourself!

MODERN VERSION

The ant works hard in the withering heat and the rain all summer long, building his house and laying up supplies for the winter.

The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away.

Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while he is cold and starving.

CBS, NBC , PBS, CNN, and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food.

America is stunned by the sharp contrast.

How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so?

Kermit the Frog appears on Oprah with the grasshopper and everybody cries when they sing, ‘It’s Not Easy Being Green.’

Acorn stages a demonstration in front of the ant’shouse where the news stations film the group singing,’We shall overcome.’ Rev. Jeremiah Wright then has the group kneel down to pray to God for the grasshopper’s sake.

President Obama condemns the ant and blames President Bush, President Reagan, Christopher Columbus, and the Pope for the grasshopper’s plight.

Nancy Pelosi & Harry Reid exclaim in an interview with Larry King that the ant has gotten rich off the back of the grasshopper, and both call for an immediate tax hike on the ant to make him pay his fair share.

Finally, the EEOC drafts the Economic Equity & Anti-Grasshopper Act retroactive to the beginning of the summer.

The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the Government Green Czar and given to the grasshopper.

The story ends as we see the grasshopper and his free-loading friends finishing up the last bits of the ant’s food while the government house he is in, which, as you recall, just happens to be the ant’s old house, crumbles around them because the grasshopper doesn’t maintain it.

The ant has disappeared in the snow, never to be seen again.

The grasshopper is found dead in a drug related incident, and the house, now abandoned, is taken over by a gang of spiders who terrorize the ramshackle, once prosperous and once peaceful, neighborhood.

The entire Nation collapses bringing the rest of the free world with it.
MORAL OF THE STORY: Be careful how you VOTE.

Disaster Planning

On April 27th, 2011 a tornado hit Cullman, AL and destroyed many things. It swept through the downtown area and destroyed businesses, homes, infrastructure such as power lines and telephone lines and more. My office was spared a direct hit but the effects were substantial none the less. We were without power for 6 days and phone and internet services for 8 days. I had a disaster recovery plan. I thought that we were ready to quickly reestablish a computer network complete with backed up data. I learned that I was not nearly as ready as I thought and I hope that this message will help someone avoid my mistakes.

I had been advised by our IT management company to develop a disaster recovery plan that included having to start completely from scratch and rebuild my computers, servers and workstations. This plan was a plan that would need to work even if my building were completely destroyed and all my paper files essentially lost for ever. You see, while my experience is thus far limited to the ripple effect of a tornado, it could just have easily been a direct hit by the tornado or a fire that destroyed my building and everything in it. That is a scary thought for any of us. But I want you to think about how much better it would be if you planned ahead and had a recovery plan in place to get your computers and communications back up quickly and without losing any of your data.

It is not an impossible goal and it is not a goal that one can afford to fall short on if one is dependent on computers to operate a business. It is called a disaster recovery plan and if it is done properly 24 hours is within reason for a 5 or so user network.