July 31, 2011 Client Newsletter

Ahhhh the dog days of summer are upon us.  It is Sunday evening when I am writing this and apparently there is some sort of deal on the expansion of the federal debt ceiling.  Although  I understand it is only a short term bill it will change the way the debt is managed and is aimed at avoiding problems this December.   Remember the Bush tax cut debate last year?

According to Political, the proposal goes back to the Gramm-Rudman sequester model of the 1980s, which calls for severe across-the-board cuts as an action-forcing device. The cuts would affect Democratic domestic priorities, including Medicare, but also about 50 percent would come from defense spending, which is a major priority for many Republicans.

The goal is to give both parties an incentive to avoid a deadlock in the committee, and the administration will also have a major stake since success will make it easier to manage its borrowing. But the severity of the threatened defense cuts is such that it risks a backlash from House Republicans, accounting for some of the continued uncertainty Sunday.  

What I found absolutely farcical about this whole mess has been the reaction of the various credit reporting agencies like Standard and Poors and Moodys threatening to down grade the federal debt.  These agencies facilitated the real estate boom and bust by giving their seal of approval to debt instruments pieced together from no-doc and sub prime mortgage loans.  They now characterize these instruments as “toxic.”

Ironically the U.S. Government always pays its creditors and it does so by borrowing heavily.  Actions that they, the credit reporting agencies, have known for years.  Despite this, dare we say, Ponzi type cycle, these credit reporting agencies have always awarded U.S. Government debt their highest ratings.

So maybe it is done and maybe it isn’t.  Maybe the markets will crash this week.  And maybe not.  Armageddon around the corner?  Maybe not. Interest rates going up?  Maybe not.  Better still lets focus on something that we can actually control and get on with our business.

Another comment about the economy.  The recent GDP report of a very sluggish 1.3 % growth for the second quarter 2011 reinforces what we have been saying for months.  Our purely anecdotal survey of small business clients leads to only one conclusion.  Making a living right now really is tough.
The IRS continues to feast on S Corporations that pay very low salaries to owners.  Typically, S Corporation owners take very low salaries, so they can receive the bulk of the corporation profits as distributions, which are not subject to payroll taxes.  IRS and the courts balk at this practice.  In a recent case, Watson, D.C., Iowa, a CPA.....who should know better...took a $24,000 in a year in which the S Corporation’s profits were around $200,000.  A district court agreed that his pay was unreasonably low and ruled that the distributions are properly reclassified as salary and are subject to payroll taxes.

This constant struggle between S Corporation owners and reasonable salaries is something that we have had extensive experience in.  The IRS reasonable salary classification and definition are a moving target.  Something that we love to talk to you directly about.  

IRS has joined with states in its fight over mis-classified workers.  It is part of the Obama budget proposal directing the IRS and the Federal Labor Department to work together to increase enforcement. Illinois has recently passed a law that provides penalties for mis-classifying employees.  Pennsylvania recent enacted legislation aimed at curing mis-classification of construction workers that include criminal penalties.  

Remember that IRS relies upon leads from states to audit firms on this issue.  Typically this referral comes from an Illinois Department of Employment Security (IDES) audit of a business generated by an independent contractor filing a claim for unemployment benefits.  Our experience is that you are almost guaranteed to be audited by IDES if your independent contractor files a claim for unemployment.  Especially if you are not currently an active employer in the system.  If you have any type of direction and control of an independent contractor, i.e., you tell them what they are going to do, when they are going to do it and set the price, they are employees.      

Another year another IRS Nationwide Tax Forum.  I will be out of the office August 13-19 attending the forum learning what issues’ IRS will be focusing on this year.  Please help me help you by getting us your sales tax information to us before I leave.  Thanks in advance.  

The dirty dozen. IRS Red Flags that lead to greater scrutiny

If you are filing Schedule C you tax return is in the cross hairs of the IRS.  Audits of individuals  by the IRS are up.  The highest in more than 13 years.  The Kiplinger Tax Letter has compiled a list of common audit triggers.  We have linked to that web site.  Just click the above link.

Tomorrow Is Often the Busiest Day of the Week

From lifehacker.com:


This Spanish proverb about procrastination reminds us that it's easy to put things off until tomorrow, but that will just mean having to catch up on everything the next day—with added stress and less time to boot.


Read more by clicking the above link.

July 3, 2011 Client Newsletter

Today’s CBS Sunday Morning’s cover story featured a look at the evolution of customer service, call centers, and propensity of large corporations for putting customer service on hold. Customer service call centers are a very big business.  Estimates of 43,000,000,000 telephone calls are made to American call centers each year.  They employ more than three million American workers.  Two million oversees.

Ever wonder why large corporations would ever consider farming out their customer service to foreign agents or even worse those press one for this and two for that voice response systems?

Money.

It costs $7.50 for an American agent to answer a customer service telephone call.  $2.35 to out source it.  Thirty-five cents for you to press number three.  Everyone was happy of course because their businesses saved a lot of money.  Everyone of course except the customer.

Things are changing however.  The Internet has become a great leveler.  Tell your customer service horror story to a web site such as Consumer Report’s Consumerist, and suddenly the offending corporation has found itself in a PR firestorm.  Corporations such as FedEx have adopted a different mentality.  They believe that customer service is not a necessary evil, rather an opportunity.  Good customer service is part of their corporate culture. Comparisons to the bankrupt United States Postal Service are in order.

As small business owners we would never consider “farming” out our customer service calls.
More often than not we are the customer service representative.  Admitting we are wrong.  Fixing what we can. Implementing new strategies to avoid further problems.  Small business should and do run circles around any large business when it comes to fixing customer service problems.

The other conclusion  I drew is how the Internet has changed the business marketplace.  Both for large and small businesses. If you haven’t yet discovered the power of the Google place’s page, yahoo local, yelp, manta....all free local Internet listings.....you need to.  Your future customers have.  We will write to you more about these free internet listings later this year.  The Internet is the great leveler.

What’s up with this three-page questionnaire you have included this month?

As your tax guy I never want to stop expressing my appreciation for your business.  I have done the very hard job of convincing you to pay me money for my tax advice.  Thank you. I began wonder why more clients don’t take more advantage of our proactive tax planning service.   After all I am selling free money.  A chance to reduce your tax bill.  Guaranteeing  much less pain on April 15th.  My conclusion is that I am not telling you enough or making it easy enough for you to take advantage of it.

Two years ago we licensed a tax planning tool...one that has helped us more than ever before... to identify and explore opportunities with our clients to cut their tax bill called Tax Coach.  

I think Tax Coach gives my clients the most innovative proactive tax planing reports that I have come upon in 30 years of practice.  Finally a simple plan for beating the IRS. Legally.

In fact, our research and testing show that clients who implement our tax coaching service can rescue thousands in wasted tax dollars, year after year.

We have documented results from clients just like you, and I think we can do the same for you.
Tax coaching is more involved than garden-variety tax preparation. Therefore, we have to limit the number of clients we accept.

Oh did I mention your cost to get this plan?  Zero.  Nothing.  It is our way of saying thanks for being a client.  In exchange of course for your honest feedback and testimonials.

Take a few minutes, fill out the questionnaire and return it to our office. I will plug in the numbers and generate a personal tax plan with an estimate summary of tax savings for you.  I will call you to arrange an appointment when I am done.

I can guarantee you will be very excited with the results.