What Business Advisory Tools Do I Choose?

by Junita Jackson

With a growing number of business advisory software tools on and entering the accounting market, it is often difficult to know what to choose.

At Smithink we recommend following our EnablerTM Seven Step to Success process using the best software at the critical steps. It is not as easy as having one tool for each step. There are several great applications that can be used. In this article, we will look at some of the tools that are available for each step.

The first step in the EnablerTM process is preparing your firm to succeed with business advisory services. This is critical to the ongoing delivery of services and should include the appointment of a champion and analysis of the right clients to start with. Many firms are using Excel sheets and Word documents to plan out their service packages and strategies for implementation. Key to this step is the development of a Client Relationship Management (CRM) solution such as MYP's Arm and Arm Pro.

From there you need to unlock your client's business advisory needs with an interactive client needs analysis. This, in my opinion, is the most important step, as it will indicate where the client's strengths and weaknesses are, and allows a proposal to develop to address specific needs. Great cloud tools here include Cash Flow Story's simple four-chapter approach to business performance and My Yardstick What's Important to you (WITY) tool and E-Scope automated pricing system can assist here to understand client needs and develop innovative proposals.

The third step is to create a "disturbance" in your client's mind using business value assessments. Paramount to this step is establishing how much the client thinks their business is worth against the commercial value and linking this to the concept of a Business Value Gap (BVG). Some of the best applications here are Cash Flow Story's Business Value Indicator and Bastar's materials, tools and programs that will calculate a capitalization rate for the client's business off financial data and a risk and value assessment. Another new tool in this space to increase the sellability of your client's business is Sellability Score.

From there we introduce financial diagnostic software to fill the gaps by analyzing and managing the client's key macro drivers and results that will improve their financial performance. We will look at where the business is today, its strengths (green flags) and weaknesses (red flags) and where it can be in the future. There are many solutions here including Cash Flow Story's Power of One, PANALITX, Fathom and Profit Guardian.

 

Finally, generate new business by growing your business advisory specialization through profitable scenario planning and offering your "how would you like to see the financial impact of every business decision before you make it" service. This look into the future requires software that can simply show the client their pre and post position. Any of the financial diagnostic tools will adequately handle this task.

With this myriad of choices, a firm needs to be confident that they select the right application for their clients and staff.

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Asset Protection Planning

by Junita Jackson

Now that you are familiar with the most important asset protection and estate planning concepts how do you create the best plan? Protecting what you have from liability and preserving your estate for your family involves many new concepts for you and it’s not always easy deciding where to begin.

In this section, we will present a summary of the issues and options available-techniques to think about to frame the building of your overall plan. This is the approach we use with our clients to analyze their particular needs and to build an efficient program for asset protection, estate planning, and tax savings.

“Asset Protection and Estate Planning with the Family Savings Trust“

An increasingly popular tool used for asset protection and estate planning is known as The Family Savings Trust.  The term is broadly descriptive of a trust designed specifically to hold and protect a variety of assets against lawsuits and business risks.  It can be very flexible in form and allows for the accomplishment of most important asset protection and estate planning goals. 

“What is the Best Asset Protection Plan for Physicians?“

In our initial discussions with a client, these questions always come up “What’s the best asset protection plan?”  “Are there any plans which are completely bulletproof?”

Like any well-trained professional, I usually duck those kinds of direct and unconditional questions. After all, this is the legal system we’re talking about and when we compound the mixture of judges, jurors, and lawyers,  the results can be unexpected, to say the least.    Law is probably a lot like medicine in that respect.  So while we can’t honestly guarantee that the particular plan we design will produce the exact outcome we want, we do know what has happened before in similar situations.  If existing case law and legislation are clear and well developed then an asset protection plan that falls within the pre-set boundaries will have favorable and predictable results.

“Answers to Key Asset Protection Questions“

When I sit with clients to prepare or review their estate planning and asset protection goals a wide variety of questions and issues arise: What plan is most efficient? How are tax savings created?  How do we protect against the lawsuit and business risk?  Although I have addressed many these topics in detail in previous columns, here are a few starter questions which often arise and which may open the door for further thought and discussion. 

“Asset Protection: Needs Change Over Time“

The type of asset protection planning you need depends on where you are in your career. Because the amount and form of your investments and the particular risks you face will vary over time, your initial planning should be appropriately flexible and capable of adjusting to meet these changing needs. 

“When Is It Too Late For Asset Protection?”

One of the life’s ironies is that the worst time for asset protection planning is when you really feel like you need it the most. Although the law favors and encourages asset protection in most circumstances, there comes a point in financial transactions and legal proceedings when it is no longer permitted. In some cases, this boundary is clearly defined, but often the question of when the remedy of asset protection is still permissible is fuzzy. Experienced planners can follow several guidelines and make some educated guesses about where the line should be drawn in situations that physicians may encounter in their practice. 

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Do You Owe State Taxes?

by Megan Kunis

As a United States (US) citizen, everyone owes state taxes. The real question is: how many states do you owe?

Many people think that they are only obligated to pay state taxes in the state in which they reside. The truth is it’s possible to owe state taxes in multiple states. There are mainly two reasons why one would have to pay state taxes in multiple states:

  1. Relocation

Wherever you live in the US, each state has you recorded as a resident. If you were a homeowner or a renter, and/or collecting wages, that state has the record of you residing in there. Your duty as a US citizen, it is not only to pay federal taxes, but also the state taxes.

Think of it this way: If you’re residing in Florida, then you expect certain things to be well maintained like public parks and beaches. You expect the protection of law enforcement and firefighters to put out fires, the streets to be well taken care of, etc. Taxes take care of all of these things and as a residing citizen, you will be expected to pay your share, whether you own property or not.

So, if you live in Texas this year, but expect to move to Louisiana next month, then when the 2018 tax filing season approaches, you will be expected to file state taxes for both Texas and Louisiana. Now, there is a possibility that you may not have to pay any state taxes depending on how much was taken out of your paycheck throughout the year. In most cases, many people receive a state refund.

  1. Conducting business in that state.

As a business owner, it’s becoming quite common to take care of taxes in multiple states, especially with so many eCommerce businesses competing with each other. Whether you have a brick and mortar location in just one or several states, or selling a product in a state other than where you live, you may be obligated to pay sales tax on the item where you sold the product in. This means that you need to be informed about the different sales tax in each state that you conduct business in.

This is why a tax lawyer is so important to have on your team when conducting business on this level. Many business owners find out all too soon that they’re in over their head when it comes to conducting business in multiple states. While the business itself is the same, where they’re located may have to be operated slightly different according to the tax laws of that state. This might be intimidating for a business owner, but old hat to a seasoned tax lawyer.

Worlds Forum Taxation and Advisory not only have an experienced tax lawyer on hand to manage your business tax obligations, we also have professional tax preparers, and CPAs at your service.

 

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4 Different Types Of IRS Audits And How To Deal With Them

by Selina Stewart

Here’s what you need to know about different types of IRS audits and how to deal with them as a self-employed entrepreneur.

What is an IRS Audit?

An IRS audit is a thorough examination of your tax account and financial information to ensure that figures are reported correctly and that you’re adhering to tax laws. As tax returns are filed they are compared to the average figures for other accounts in this category.

If your figures seem to be elevated, or show anomalies, your return is put into a pool of other returns and randomly picked for more in-depth review by an experienced auditor. After a review, your return may be accepted and filed away, or the return is forwarded to an examining group for further analysis.

There are a few types of IRS audits:

  1. Correspondence Audit

A correspondence audit is the most common and simplest of the IRS auditing processes. The IRS will send you a letter in the mail requesting answers to specific questions or needed clarifications related to your tax return.

You will likely have to perform a correction of your tax return that may either result in paying in more money or receiving a refund for an accounting error. Either way, the correspondence letter will state the reason for the inquiry and often offer a simple resolution via an exchange of papers.

If you have data or receipts to back up specific claims, this is the time to send them in to help make your case. This type of audit is usually solved within a short time period once all the information has been collected. Be sure to keep copies of all correspondence in case anything comes into question again in the future.

  1. Office Audit

If the IRS has further questions about your return that extend beyond the normal correspondence letter, you’ll receive an invitation for an in-person audit meeting at one of their local offices.

This type of audit is a bit more serious than a correspondence audit and requires more of your time. However, an office audit is usually completed within one day since most information will be supplied on demand, and you’ll have time to supply any additional information that’s requested.

  1. Field Audit

A field audit is the most serious situation as the solutions to the issues could not be resolved with a simple letter or office visit. The IRS will visit your place of business and may look around to verify the legitimacy of your workplace, employees, and other business expenses.

It’s strongly encouraged, in the case of a field audit, that you hire a professional Enrolled Agent, tax professional, or CPA to be an advocate for you and your business. They will be able to answer questions on your behalf and ensure you’re getting fair processing.

  1. Random Reviews

In addition to traditional audits, you may be subject to a random review of your tax situation. The IRS isn’t looking for anything in particular when they perform these random reviews and will simply look at your return for inaccuracies.

These reviews are generally performed via a correspondence letter with notice that your account is being looked over. Usually, you won’t receive a follow-up letter if the review of the return doesn’t result in any red flags. In this case, you shouldn’t be too alarmed as the IRS agent isn’t looking for anything in particular.

How Far Back Can the IRS Audit?

The IRS tries to audit tax returns soon after they are filed, but can sometimes be as far back as the last three years. If there are additional errors or substantial mistakes, the IRS usually won’t go back more than the last six years.

To back up any business deductions, credits, and other income information, it’s recommended that you keep all tax receipts and information for at least seven years. Or in the case of an asset, save the records for as long as you own the asset, plus three additional years.

If you are notified you’re being audited, remain calm and have a talk with your tax professional. Usually, these situations resolve themselves quickly and easily so you likely don’t have anything to worry about.

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10 Frequently Asked Questions About Payroll Processing

by Megan Kunis

Processing payroll is one of the most complex and time-consuming tasks a business must complete. If you’re new to the process, payroll can be confusing. Here are answers to some of the most frequently asked questions about payroll.

What Is an EIN?

The IRS issues employee identification number (EIN) numbers. This 9-digit number is used on federal and state tax filings for businesses, including payroll tax reporting documents. You can apply for an EIN through IRS.gov.

The EIN number can be used for a variety of business entities, including sole proprietorships, S corporations, and C corporations. Assume, for example, that you operate a C corporation, Ganz Manufacturing. Your corporation can operate under more than one fictitious name, and you can use the same EIN number. Ganz Furniture and Ganz Tool and Die, for example, could be fictitious names used by the same corporation.

This policy simplifies the tax filing process. You’ll need to register your fictitious names in the state where your business is headquartered.

What Is an I-9 Form?

Employers use Form I-9 to verify the identity and employment authorization of individuals. Every U.S. employer must have a completed Form I-9 for each worker hired, whether or not the individual is a U.S. citizen. To complete the form, an employee provides documents as evidence of their identities, such as a driver’s license, birth certificate, or passport.

An employer must retain each Form I-9 for a specific period of time, and a state or federal government official may ask to inspect the forms. Government agencies review I-9 forms to verify that each employee is authorized to work in the U.S.

What Is a W-4 Form?

Each worker completes IRS Form W-4 to indicate the amount of tax withheld from gross pay for federal income taxes. Employees complete similar forms for state income tax withholding.

How Do I Determine Payroll Taxes?

Once a W-4 is completed, the employer uses IRS guidelines to calculate the dollar amount of federal income taxes withheld. Each state has similar guidelines to calculate state tax withholdings.

The payment schedules are published in IRS Publication 15.

What Does Withholding Actually Mean?

Withholding refers to the dollar amount of federal and state income taxes that an employer collects from a worker’s gross pay. The dollar amount is determined based on the IRS W-4 form and the state’s withholding form. The company sends the taxes withheld to the IRS and the state’s department of revenue.

The dollar amounts withheld are reported to the worker on Form W-2 after year-end. It’s the employee’s responsibility to file their personal tax return and calculate their tax liability. The worker subtracts the W-2 taxes withholdings from the tax liability, and any remaining amount of taxes owed should be paid when the tax return is filed. This process applied to both federal and state taxes.

What Are Third-Party Liabilities?

In addition to withholding taxes, employers may also withhold the worker’s share of payments for insurance premiums, retirement plan investments, and other benefits. The worker decides on the amounts withheld for the payments. Once these payments are withheld from gross pay, the employer forwards the payments to each third party (insurance company, an investment firm, etc.).

When Do I Need to File W-2s and 1099s?

W-2 and 1099 forms are issued for different reasons. A W-2 is issued to an employee to report gross wages earned, tax withholdings, and other withholdings from gross pay. If you have wages withheld to pay for insurance premiums or to fund a retirement plan, those amounts are reported on a W-2.

The IRS requires employers to mail W-2 forms to workers no later than January 31st of the year following the end of the tax year. So, 2017 W-2s must be mailed by January 31st of 2018.

If your firm has paid at least $600 to a vendor for a product or service, you must issue a 1099-MISC form to that vendor. Freelance workers are considered vendors and are issued a 1099-MISC form. The IRS also requires employers to mail 1099-MISC forms to vendors no later than January 31st of the year following the end of the tax year. The employer combines all of 1099 issued and reports them to the IRS on Form 1096.

What Is Workers’ Comp Insurance?

Businesses purchase workers’ comp (compensation) insurance policies to pay for medical care and other costs if a worker is injured or killed while working on the job. The insurance policy pays for medical expenses and makes payments to the injured party based on a state’s workers’ compensation laws.

The insurance premiums are based on the total dollar amount of payroll a company pays, and the type of work performed the employees. If workers perform manual labor or work in jobs that expose them to physical injury (such as construction), the insurance premiums will be higher.

Construction, engineering and other firms that have a higher risk for worker injury need to have safety plans in place to reduce the risk of workplace injuries. If you can limit worker injuries, you can keep your insurance premiums at a reasonable level.

Am I Required to Have Labor Law Posters?

There are state and federal labor law poster requirements for businesses. The posters address worker rights related to the federal minimum wage, equal employment rights, and worker safety, among others. Companies can purchase “all-in-one” posters for both federal and state labor law requirements. The posters should be displayed so that employees can see them each day. The posters are typically posted in a break room.

What Does a Payroll Company Do?

A payroll company can perform many of the complex tasks required to process payroll accurately. To get started with a payroll company, a business provides the gross pay and withholding amounts for each employee. The payroll company uses current tax laws to calculate the correct tax withholdings and also withholds any benefit payments.

You can give a payroll company access to your corporate bank account so that the company can send each net pay amount to employees. This outside firm submits the payments withheld to the IRS, state revenue departments, and any other third parties. The company will complete all payroll reports and create W-2s and 1099s at year-end.

Every business should consider using a payroll company. This decision will help you save time and ensure that your payroll processing is accurate.

QuickBooks offers a number of payroll solutions ranging from simply cutting checks to full-service payroll. All payroll products integrate directly with your accounting software to keep your books in order with less work.

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Don’t Leave Money On The Table! Access Your Education Tax Benefits.

by Junita Jackson

A report by the Government Accountability Office found that nearly 14 percent of all tax filers failed to claim a credit for which they were eligible. Tax credits help us afford higher education expenses by reducing the amount of income tax we have to pay or by issuing a refund. Unfortunately, millions of students and their families are unaware or don’t apply for the correct tax benefits, leaving much-needed dollars on the table—an average of $466 for each qualified filer!

Are you one of them?

Recently, NCLR joined Rep. Danny Davis (D–Ill.) and others on a campaign to get more people to apply for their education tax benefits. The Tax Breaks 4Students campaign encourages eligible students and families to apply for tax credits.

While eligibility criteria vary for each credit, there are a number of options available for students and families. The two largest tax credits available are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), although there are many others.

American Opportunity Tax Credit

The AOTC can be claimed for the first four years of post-secondary education if a student is enrolled at least part time in courses. The maximum tax credit for AOTC is $2,500, and up to $1,000 is available as a refund if you owe no taxes. If you are a current graduate student, you are not eligible for AOTC; however, you may be eligible for the Lifetime Learning Credit.

Lifetime Learning Credit

The LLC provides up to $2,000 per year for a student enrolled at least part time. Unlike the AOTC, the LLC has no limit on the number of years it can be claimed, meaning it is available to graduate students and those in continuing education programs. However, if the credit is greater than the total amount owed in taxes, it will not be issued as a refund.

How do I claim these credits?

The IRS provides an interactive guide to help you determine whether you qualify for a tax credit. Only students who attend schools participating in federal student aid programs can qualify for the AOTC. Once you confirm eligibility, the IRS provides Form 8863 to help you calculate the education tax credit. Most education institutions will mail you Form 1098T, which provides this information for you.

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Beware Of Domestic Asset Protection Trusts

by Jason Kelley

The Domestic Asset Protection Trust ("DAPT") is an irrevocable trust that allows the settlor (or creator) of a trust to be a discretionary beneficiary.  While this trust has some advantages, it should not be used for Asset Protection as recent litigation has highlighted concerns about the DAPT, as it is often an inadequate entity to protect assets.  The DAPT is often referred to as a "self-settled trust" because the settlor is one of the beneficiaries.  Self-settled trusts allow the trustee to have the discretion of whether to make distributions to the settlor, while simultaneously protecting the assets from the settlor's creditors.The primary goal of the DAPT is to protect the assets of the settlor from their creditors.  The DAPT may also allow a settlor to transfer assets to a trust, preventing these assets from being included in the settlor's gross estate.

The major disadvantages of using the DAPT as a personal asset protector are as follows:

  • In creating a DAPT, you are more susceptible to litigation on your trust (fraudulent transfer claim) as Creditor's use this argument often to break through DAPT trusts to get to debtor assets.
  • The laws of the state where the DAPT is formed will not necessarily apply where the settlor, beneficiaries, or the trust's assets are not subject to the jurisdiction of the state.  In other words, a DAPT is only valid if the settlor and beneficiaries, as well as the trust assets, are all in the DAPT state.  Further, only twelve jurisdictions recognize the DAPT – so there is little uniformity across the United States.
  • State law pursuant to the Supremacy Clause of the US Constitution does not always bind federal courts.  Therefore, DAPT statutes may not protect the settlor against judgments in federal courts or by federal administrative agencies.
  • DAPT, as self-settled trusts, have a longer statute of limitations for creditors to sue on than most other Asset Protection Tools.

On the other hand, the limited liability company (LLC) and limited partnership (LP) are far more adequate entities for Asset Protection planning.

See more on these entities at the following links:

  • Limited liability companies
  • Limited partnerships

If you have any more questions regarding DAPT's or any other Asset Protection Planning tools, feel free to contact our Attorneys.

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Income Tax Liability In Bankruptcy For Appreciated Property

by Zach Haris

People avoid filing Chapter 7 bankruptcy if they have the nonexempt property with significant equity. Yet, consider a debtor who owns real estate that has appreciated and therefore has a built in liability for capital gain. If that debtor files bankruptcy could the IRS hold him personally liable after bankruptcy for the income tax liability associated with the gain on the property?

When a person files bankruptcy all of his property interest is transferred to the Chapter 7 trustee and the property constitutes the bankruptcy estate. The trustee acquires the debtor’s property with its tax characteristics including gain and character. The trustee controls the sale of the property, and the trustee receives the sales proceeds for the benefit of creditors.

The trustee and the bankruptcy estate is liable to pay the tax liability created by the sale of the debtor’s property. The tax is an administrative expense. The debtor is not liable for tax on the sale of property he had conveyed to the bankruptcy estate upon filing bankruptcy. A trustee may avoid tax liability by abandoning the property instead of selling it.

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3 Ways To Get A Fresh Start With The IRS

by Megan Kunis

Who couldn’t use a fresh start—especially when it comes to alleviating tax debt? If getting rid of debt were as easy as closing our eyes and snapping our fingers, we’d never learn the meaning of discipline. No, if getting rid of debt was that easy, then the Internal Revenue Service (IRS) wouldn’t even be necessary. But debt is a real thing that plagues most American taxpayers and while many may have it under control, there are millions who don’t. That uncontrollable debt can spill over to having issues with federal debt—something you might want to avoid altogether if at all possible.

Yet, many don’t.

The IRS’ Main Job

And aside from collecting tax debt, the IRS is very necessary for ensuring that the taxes collected are fully accounted for so that lawmakers and congressmen can disperse them to the proper legislative channels. In order for them to do this, they need to have an accurate budget of the numbers. This is projected by the number of American taxpaying citizens and their household income. The level of their income will determine exactly how much they owe in taxes.

So if those taxpayers who owe don’t file or pay the amount that the IRS claims they owe, this puts the US Treasury in a compromising situation. Take, for example, your paycheck. If you’re expecting a certain amount of money to be directly deposited into your bank account, then chances are you may have already planned to spend that money on paying bills, groceries, etc. If you don’t receive that check, then you’re put in a compromising position. With the US Treasury, they’re in a compromising position that could be well into trillions of dollars!

Success Tax Relief does not want you to be in a financially compromising predicament. If there’s a way we can help you get a fresh start, then we want to provide you with 3 simple steps in helping to clear your tax debt once and for all.

  1. Monthly Payments

Even if you owe the IRS thousands of dollars, they will work out a monthly payment plan that won’t leave you in hardship. All you need to do is communicate your intention to pay.

  1. Avoid Tax Liens a Little Better

There’s really nothing that you need to do to make this work for you except avoid your tax debt from increasing. To do this, just avoid any missed or late payments because late payments equal penalty fees, and penalty fees and missed payments mean you’ve forfeited the payment agreement, and you’re right back to where you started—in debt and/or in trouble!

  1. File for an Offer in Compromise

It’s quite possible that you might be eligible for an Offer in Compromise that allows you to pay less than you owe. This isn’t an option that everyone is qualified for. Each case is different.

To determine if you qualify for an Offer in Compromise or if you need assistance working out a monthly payment plan to the IRS, then contact Debt-Ridden Tax Relief for a free consultation. 

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Timing Strategies Could Become More Power In 2017, Depending On What Happen With Tax Reform

by Zach Haris



Projecting your business income and expenses for this year and next can allow you to time when you recognize income and incur deductible expenses to your tax advantage. Typically, it’s better to defer tax. This might end up being especially true this year, if tax reform legislation is signed into law.

Timing strategies for businesses
Here are two timing strategies that can help businesses defer taxes:

1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.

2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

Potential impact of tax reform

These deferral strategies could be particularly powerful if tax legislation is signed into law this year that reflects the nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27.

Among other things, the framework calls for reduced tax rates for corporations and flow-through entities as well as the elimination of many business deductions. If such changes were to go into effect in 2018, there could be a significant incentive for businesses to defer income to 2018 and accelerate deductible expenses into 2017.

But if you think you’ll be in a higher tax bracket next year (such as if your business is having a bad year in 2017 but the outlook is much brighter for 2018 and you don’t expect that tax rates will go down), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but might save you tax over the two-year period.

Be prepared

Because of tax law uncertainty, in 2017 you may want to wait until closer to the end of the year to implement some of your year-end tax planning strategies. But you need to be ready to act quickly if tax legislation is signed into law. So keep an eye on developments in Washington and contact us to discuss the best strategies for you this year based on your particular situation.

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