Search results

12 Tax Free Fringe Benefits!

February 21, 2011 @ 7:38 pm posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

Fringe benefits are defined as compensation or other benefits received by an employee that are not in the form of cash.

The type of fringe benefit that we are most interested in are TAX FREE fringe benefits.

These Tax Free benefits may be excluded from the employee’s gross income and, therefore, are not subject to taxes. The best part is that employers can still take a tax deduction for these fringe benefits resulting in the best of both worlds: Business gets a tax deduction and employee does not pay taxes on the flip-side.

What this means for small business owners is the ability to shift money that would otherwise go to the IRS into tax free perks that you and your employees may enjoy!

Here are a dozen examples of Tax-Free Fringe Benefits that you may take advantage of as a business owner:
Gifts. Certain gifts to your employees can be excluded from the employee’s income and still be a tax deduction to you. Examples can include holiday gifts, occasional theater or sporting event tickets, flowers, fruit, or books. So instead of paying your employees bonuses, reward them with gifts instead and save taxes for you and your employees!
 
Achievement Awards. You can award your employees an item of “tangible personal property” (e.g., a trophy or plaque) for length of service or a safety achievement. As long as the award is given as part of a meaningful presentation and does not appear to be disguised compensation, you may be able to exclude up to $400 or $1,600 as tax free fringe benefits.

Retirement Planning Services. What greater gift than to help your employees plan for retirement? The money spent on retirement planning services for your employees and their spouses, which helps them prepare for retirement, may be a tax free fringe benefit to the employees.

Lodging and Meals on Your Business Premises. Instead of paying your employees more, consider providing lodging and meals for them instead to save taxes for you and your employees. The money you pay for your employee’s lodging and meals online pharmacies may be exempt from taxes if these benefits are provided for the employer’s convenience and is a necessary condition of employment.

Qualified Transportation Fringe Benefits. Some of the items that qualify for tax free benefits include transportation such as van transportation between the employee’s home and work, a transit pass, or parking. You can offer each employee up to $230 a month in tax free fringe benefits on qualified transportation which reduces your tax bill and is tax free to the employees. That equals up to $2,760 of tax free benefits per employee each year! Instead of paying for theses employee expenses directly, you may be able to simply reimburse your employees for these expenses with cash. What a great way to minimize income and payroll taxes for you and your employees!

Use of a Company Van for Commuting. This may also qualify as a tax-exempt benefit. As long as the van is a “highway vehicle” that seats at least six adults and that at least 80% of the vehicle’s mileage is used for:

  • Transporting employees between their homes and workplace, and
  • Employees occupy at least half the vehicle’s passenger seating

On-Premises Gym. Research has shown that corporate fitness can significantly boost a Company’s productivity and profit. So why not take advantage of the tax free fringe benefits by providing a gym or workout place for your employees? You may provide an on-premises gym or other athletic facility TAX FREE for your employees, their spouses and their children!
 
Educational Assistance. Instead of paying bonuses this year, rewards your employees with the tools they need to succeed! In order for most businesses to succeed and thrive, employees may need to receive continuing education or additional training so they can help bring VALUE to the business. One of the best Tax Free fringe benefits offered by the IRS is that Companies can provide up to $5,250 in education assistance per employee and take a tax write-off for it. This means that you can pay up to $5,250 of education costs for each employee that will also be TAX FREE to the employees as well. What an amazing benefit that provides a win-win situation! You can save taxes, educate your employees, and improve your business!

Moving Expense Reimbursements. Let Uncle Sam help pay your employees to move. The costs incurred for your employees to move for their job may be a tax free fringe benefit also. So what types of moving expenses are tax free fringe benefits? Almost anything! Examples include packing, crating, transportation, insurance, shipping, storage, mileage, and lodging to name a few.
 
Payments or Reimbursements of Qualified Adoption Expenses. We just talked about having Uncle Sam pay for your business related moving expenses?.but how about having Uncle Sam pay for adoption expenses as well? Why not?he is our Uncle right? For 2011, you may deduct up to $13,170 per employee in qualified adoption expenses as a tax free fringe benefit. If you or your employee are excited about bringing home that bundle of joy?this tax perk probably just made your day even sweeter. Think of all the diapers you can buy with $13,170!
 
Accident and Health Benefits. Employers may contribute to an employee’s accident or health insurance plan as tax free fringe benefits. Items that qualify for tax free treatment include:

  • Contributions for accident or health insurance, and qualified long-term care insurance.
  • Contributions to Archer MSAs or a health savings account (HSA).

Group-Term Life Insurance. One of my favorite tax free fringe benefits is the Group-Term Life Insurance. You can provide up to $50,000 of group-term life insurance coverage per employee per year as tax free fringe benefits. Another tax deductible perk that may be Tax Free for you and your employees.
Take some time to think about which of these tax loopholes you can implement in your business to shift tax dollars into enjoyable personal perks.

Fringe benefits can not only help you to save business and personal taxes, but it can also be used as a retention and employee incentive tool. What’s not to like about the words TAX FREE?

Warmly,
The Taxloopholes.com Team!

off   read more

8 Tips to Control Your Staffing Costs

February 9, 2017 @ 10:00 am posted by David Finkel (Taxloopholes.com Advisor)

In most companies, the largest expense is their employee. Now I want to frame this article with a clear understanding that your team is essential and indispensable, and really not an expense. Still, I want to share with you 8 sure-fire suggestions to help you control your staffing costs.

  1. Tie compensation to value created, not time served.
    Too many businesses reward staff with raises, bonuses, and perks (e.g. vacation time, etc.) based on years of service. I strongly encourage you to shift the conversation to be about value created.
  2. Bonuses and benefits are not “rights” but tied to performance (both individual and company).
    Any bonus that is regular and expected soon becomes “base”. How do you frame your bonuses? Are they are “right” or are they a reward for value created?
  3. For creative and interesting work let intrinsic rewards rule.
    This means don’t try to find financial incentive systems to overly control or encourage behavior, but instead, for interesting, creative work, let the work itself (and the feedback your team gets) be the driving force.
  4. Consider cuts to your admin team, or at the very least, grow this part of your team slower than your sales.
    Most service and administrative departments can be cut by 1 in 4 with no impact on quality of work. Many can handle 1 in 3 cut with no significant negative impact. Remember, work expands to fill the time, and not all this expanded work creates value.
  5. Stop all “make work”.
    This is a follow up to suggestion four. The best way to cut “make work” is for your staff to have full plates that force them to prioritize and leave lower level items undone, or done good enough. Also consider your company culture. Is it encouraged and championed in your company for lower level team members to powerful champion cutting low value legacy “make work”?
  6. Cut wasteful meetings (or at least cut time in half).
    Do you really need all the meetings you have each week or month? Couldn’t you cut the attendance list or meeting time by half and still get the same or perhaps a better result? Clear agendas and firm facilitation make the meetings you do have more productive.
  7. Twice a year issue a “full benefits report” to every employee.
    On that report lay out the full financial value of all benefits your company pays to them –directly and indirectly. This includes the dollar value of their salary, bonuses, medical, vacation time, FICA taxes, etc. The reason to do this is to keep everyone clear that the money they receive twice a month in their take home pay check is just part of what the company pays to them.
  8. Cut your low performing team members now.
    Get over your fear of firing people (low performers cost too much to carry.) As soon as you know that you have a team member who just isn’t going to cut it, make the decision to help them move on to their next career position versus just staying in limbo with you. It’s better for them and it’s better for your company too.
off   read more

7 Must Know Items When Using Independent Contractors for Your Business

October 31, 2016 @ 8:00 am posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

Some of you may be aware that as a business owner, you can save thousands to tens of thousands of dollars each year in taxes and benefits by hiring independent contractors rather than employees. As an employer, you can avoid the paying, withholding, and filing costs each and every year for your independent contractors that you would otherwise need to incur with an employee.

It should come as no surprise to you that the IRS has been working hard to close this amazing loophole as part of its efforts to raise tax revenue. I met a man who owned a mortgage company and paid all his sales people as independent contractors. He got under a brutal IRS audit and ended up losing EVERYTHING…his business, his investments, and his home. Needless to say, the IRS will continue to enforce this area of the tax code because it is a high revenue generator for the Treasury Department. So what does this mean for you as a business owner? This means that you need to Protect Yourself! If you have independent contractors in your business, you need to make sure you have all the correct documentation and support protect yourself in case of an audit.

In order to protect your business from the auditor, you first need to know “how” they conduct their audits in this area. Currently, the IRS agents take a special class that trains them on how to audit worker classification of small businesses. The good news is that the materials in this auditor training course are actually available for us to see! We can all access the IRS playbook and learn about “how” they plan to audit our businesses!  This manual, entitled “Independent Contractor or Employee?”, is available at www.irs.gov/pub/irs-utl/emporind.pdf.

If you aren’t too excited about reading through all 160 pages of the manual, you are in luck. Here is a highlight of only the important areas that you need to know.

The auditors are taught to analyze the employee versus independent contractor status of your workers using a series of seven factors. These factors are:

  1. Degree of control exercised by the principal.
  2. The worker’s investment in facilities.
  3. The opportunity of the worker for profit and loss.
  4. The right of discharge.
  5. Whether the services performed were part of the principal’s regular business.
  6. The permanency of the relationship.
  7. The intent of the parties.

In addition, the auditors focus on the dynamics between the employer and the worker in terms of behavioral control, financial control and relationship of the parties. In short, the IRS wants business owners to have little or no control in the behavior and finances of its workers in order to be an independent contractor.  The more financial and behavioral control the employer has, the more likely the relationship is one of employer/employee.

As an example, a truck driver for a delivery company was able to qualify as an independent contractor and not an employee because the truck driver:

  1. Controlled the manner in which he scheduled pickups and deliveries.
  2. Invested a significant amount of money in his truck driving activity.
  3. Bore the risk of loss if his trucking expenses exceeded his income.

Now that you know “how “ the IRS looks at the independent contractor status in doing their audits, here are some things you can put in place to protect yourself in case of an audit:

  1. Create a job description for the position which indicate limited control and an independent working environment.
  2. Ensure your Company’s operating agreement and employment policies treat the position as an independent contractor.
  3. Get a signed independent contractor’s agreement between the Company and the worker.
  4. Have a completed Form W-9 from each independent contractor you hire.

As we discussed, the independent contractor is a great way to cost efficiently add to your workforce. Savings in money and resources can make hiring independent contractors an attractive alternative to hiring employees.  Now that you know IRS playbook, you are armed with the strategies that can help you to safely maneuver potential future audits.

off   read more

8 Signs You May be Overpaying Your Taxes

October 24, 2016 @ 8:00 am posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

It is scary to think that the average American loses more money to taxes each year than we do on food, clothing, and shelter combined. This year, we have been getting tons of calls from business owners and investors who feel they may have overpaid in taxes. The silver-lining with this is that as a result, more and more people are finally taking the steps necessary to stop the bleeding. More and more people are now finally taking the action steps needed to take control of protecting their bottom line from taxes with proactive tax planning.

So how exactly do you know if you are overpaying in taxes? The good news is…there are simple steps you can take to find out. To gauge your risk level of lost tax dollars, here are 8 signs to help you measure your risk potential:

  1. Recordkeeping:
    Bad Sign: You do not have good bookkeeping systems in place: Ever heard of the saying “What gets measured gets managed”?  It is just as important to know how much money is coming into your business monthly as it is to know how much is going out. If you are not keeping track of your monthly expenses, you can easily lose out on some legitimate tax deductions!  Having accurate and timely financial information not only helps you to manage and grow your business…but it is also the foundation for an effective tax savings plan as well.
  2. Communication:
    Bad Sign: If you do not meet with your tax advisor throughout the year, plan on paying higher taxes.  For those of us who plan on paying the least amount of taxes possible, proactive planning happens year-round.  If April 15th is the first time you are thinking about reducing taxes for last year, you have probably missed out on some big tax saving opportunities. Open the lines of communication with your tax advisor to ensure you are maximizing your tax deductions throughout the year.  Some of the most significant and impactful tax saving opportunities need to be implemented as part of your business’ operational system. 
  3. Knowledge:
    Bad Sign: You have to explain your business operations to your tax preparer year after year.  Not all tax advisors are created equal. Taxes are a very specialized area and there are specific strategies for specific business industries. For example, there are special tax saving opportunities for people in the real estate business. There are also special tax strategies for those in the manufacturing industry. The strategies that work for those in the services industry may not benefit those who are in the retail industry. Make sure your tax advisor is well versed in the tax saving opportunities in your industry.
  4. Compensation:
    Bad Sign: You don’t have a plan on how to tax efficiently take money out of your business. There are tons of different ways to take profits out of your business and each of them has their pros and cons.  For example, if you are a C Corporation, you may save thousands of dollars in taxes by paying yourself a higher salary every year. If you are an S Corporation, the opposite may be true where you can save thousands to tens of thousands of dollars by paying yourself the least amount of salary possible. There are also some great ways for you to extract profits out of your business completely “Tax Free”.  If you don’t have a plan in place to know “how” to extract your company profits tax efficiently, you may be over-paying your taxes.
  5. Retirement Planning:
    Bad Sign: You are not currently taking advantage of tax deferred and/or tax free opportunities of retirement planning through your business. Ask yourself: Are you using retirement planning to significantly reduce your taxes currently? There are so many different types of retirement accounts that are available for business owners to save taxes today and save for retirement at the same time. If you pay taxes to the IRS and have not used retirement planning techniques in the past, you are probably overpaying your taxes.
  6. Fringe Benefits:
    Bad Sign: You have never heard of the term “fringe benefits”. There are tons of tax free fringe benefits available where your company takes a tax deduction for perks they provide to you as the business owner (and it’s not taxable to you). There are over a dozen of these wonderful techniques including company cars, gifts, and Medical Savings Account to name a few. If you do not utilize tax free fringe benefits as part of your business planning, you may be overpaying your taxes!
  7. Personal and Business Deductions:
    Bad Sign: Not knowing what items you can legally shift from your personal bucket into legitimate business deductions. In this day and age, it has become harder and harder for us to distinguish between personal vs. business items. How many of us use our personal cellphone for business? How about our cars? iPads? Laptops? All these personal items that you use day in and day out for your business may be legitimate tax deductions. If you don’t know how to shift personal items into business deductions, you may be overpaying your taxes!
  8. Tax Savings Plan:
    Bad Sign: Not having a tax savings plan in place to ensure you and your business profits are protected from Uncle Sam. Incorporating all of the items we discussed above, the question you should be asking yourself is “What is my tax savings plan?” If you don’t know it, if you can’t verbalize it, then you probably don’t have one. Not having an overall plan on “how” you will save taxes for your business and you personally is the most common mistake costing taxpayers to overpay taxes year after year.

If you have answered No to one or more of the above, then you may be part of the thousands of business owners in the US who are overpaying in your taxes. In case you didn’t know, the only way to legally save taxes is with proactive tax planning. As we all know, it is not as important how much money we “make” rather how much of it we get to “keep”!

off   read more

The 6 steps to build out your expert system

October 13, 2016 @ 8:00 am posted by David Finkel (Taxloopholes.com Advisor)

In my last article on why you’ve got to make smarter choices that you know will scale, I shared that this week I was going to share my best input of handling the specific challenge of scaling up “expert systems”.

Scaling your business requires building it in such a way that your model and systems can be rolled out and replicated on a much bigger playing field. When you’re solving a business challenge, you must look for solutions that can be scaled.

But many business owners say that because they’re selling expertise that lives in their heads, they can’t scale their businesses.

Your expert systems capture the hard-earned wisdom of how to perform your company’s core business functions. They replicate that expertise in a formalized process and connected set of tools, training, and controls to make it possible for the business to own that expertise versus the know-how being held in the brain of a key employee. Not only does this protect your business from the loss of a key employee, but it also allows you to replicate this formally expert-level-only process in a coherent system.

This means you can scale an expert system because one person is no longer the bottleneck. It also means you can lower your costs as you push down the level of expertise needed to reliably produce the desired result, perhaps even automating a large chunk of it.

Because you are freezing the formerly impromptu process into a formal process, you can also optimize it, increasing the speed and value of the output. And finally, because you now have a readily reproducible recipe to focus your efforts on, you can control for consistency and quality, even creating simple business controls to ensure the process runs right.

In a perfect world, you’d love to have a business that runs by itself; while you’re at the pool, your company takes orders and delivers products. While this fantasy may not be possible, using this filter to look at your business prompts you to constantly find ways to automate, streamline, and improve operations instead of just adding more people when more work comes in.

For example, in an earlier business coaching and training company I founded in January 1997, initially my business partner and I did all the training and coaching services. We capped out at roughly 30 clients per quarter. But as the business started to grow and we retained our existing clients, we faced a major hurdle—finding a way to deliver a world-class business coaching service that didn’t rely on us to personally do the coaching.

This required that we create a formal process where we “froze” our process and expertise for working with a coaching client to deliver great results into a collection of tools. These tools included:

• The process to find, hire, and train new coaches;
• The diagnostic tools to work with a new client;
• The accountability tools to keep clients on track;
• The ongoing training process to continually grow his coaches over time;

• The technology to automate many of these processes;
• Etc.

Collectively, all these tools and processes evolved into our expert system for producing coaching services. The most amazing part was that once we had built this expert system that essentially replicated and replaced my partner and I from direct client coaching, by every measure of success (e.g., growth in client sales, growth in client profits, client satisfaction ratings, client referral rate, etc.) the expert system produced a better results.

While I eventually sold this company in 2005, at the time of sale we had scaled the coaching division to work with over two thousand clients a year.

Here is a six-step formula for building your core expert systems.

Step One: Define All Deliverables
A deliverable is any result your expert system needs to produce to meet the expected promised outputs of your system. This is just a fancy way of saying that you need to clarify what exactly your system is supposed to produce for its customer.

This may include getting a certain number of physical products to your customer by a certain date, making a report or recommendation on a course of action to your client on how to best handle a specific challenge, or some other output your expert system has promised to fulfill.

As you can imagine, the more complicated the expert system you are working on, the more deliverables you’ll capture on your list. While this may seem overwhelming at first, this should actually comfort you. You’ve already been producing all of these deliverables, but you were doing so in an informal way that one or two key people in your company just “did.” By concretely defining your deliverables, you’re taking that key first step in building out a system that will effectively produce them. After all, how can you produce what you haven’t consciously identified you’ve promised to create? And without documenting all these deliverables, how can you get customer sign-off that you are actually doing your job well and delivering on your promises?

Step Two: Lay Out the Process
Now the fun begins. Grab a pad of yellow sticky notes and your list of deliverables. Placing one “step” on each sticky note, lay out the process your company will use to create and deliver on all those deliverables. Using sticky notes keeps you fluid and loose as you design and document your process, allowing you move them around, add steps, combine steps, or delete steps.

Once you’ve got a rough layout of your steps, it’s time to ask yourself a series of questions to refine your draft process.

• Which deliverables really matter?

• Which deliverables are nice but not essential?

• Which deliverables do your employees think your customers want or asked for but didn’t?

• How can you eliminate these deliverables that actually just get in the way and are not wanted?

• How can you reduce the steps and still generate the desired results? And generate an improved result?

• How could you decrease the resources needed and still generate the desired results? And generate an improved result?

• How can you speed up this process?

• How can you automate or template this process (or part of this process)?

• How can you lower the costs of doing this process without impacting the value of the output?

• What simple changes or improvements can you make to increase the value of the output?

• How could you marginally increase your cost to produce but in a way that so enhances the value of the output that you can get a price increase for the value you’re offering now?

• Who else in the world has a related process or tool you can learn from to help you better design this process?

• Could you outsource any parts to this system? Does it really make sense long term to do this?

• How could you make the system more robust? More stable? Less prone to error?

Once you’ve thought about and answered these questions, return to your sticky notes. Based on your questions, move, add, delete, and play with the steps of your system until you lay out a process that promises to be faster, cheaper, of better quality, of greater impact, and more scalable.

When you’ve drafted these improvements into your sticky notes, you’ll lay out the finished process into a complete and neat recipe to produce the desired outputs. This recipe will be a simple longhand list of each step in the process. (e.g., Step One . . . Step Two . . . Step Three . . . etc.)

Step Three: Determine the Optimal Level of Expertise for Each Step
As a business, you want to find ways to relieve your most expensive and experienced employees from doing lower value work. To sustainably scale your business, you must work to push as much of the work of each expert system down the value chain so that your experts do less of your expert system. Not only does this immediately increase your capacity because your expert can be spread over a larger volume of total work, it also drives down your costs as the work performed at a lower level is much less expensive.

There is a hierarchy of expertise for each step in your expert system. At the bottom, you have those steps that can be automated, semi-automated, or made into a template. Next, you have those steps that require a person to complete them, but not necessarily a skilled person (e.g., clerical, administrative, unskilled laborer, etc.). The next level up is for those steps that need a semiskilled team member to perform them (e.g., paralegal, nurse, journeyman, etc.). Above this is the level of skilled, which requires a basic expert to produce these steps. Finally, the top level of the pyramid is for those steps that require a top expert to produce for the business, which in most small businesses is the owner or one or two key employees.

Let’s look at an example of how this hierarchy of expertise plays out in a law firm to make these levels clear. Automated, semi-automated, or templated refer to things like the standardized engagement letter that gets sent to any new client or the library of boilerplate contract templates they have on the company’s server. Non-skilled tasks include those tasks that a clerical worker without legal training could handle, such as scheduling meetings, collecting client data, and gathering historical documents to give to the attorney. Semiskilled tasks in this context would likely refer to those items that a paralegal could produce as opposed to an actual attorney. Basic expert tasks are those that only a licensed attorney could do, although they could be done by a less expensive, less experienced associate attorney. Top expert tasks are processes and functions that require the best legal talent at that firm in that area—things that likely need years of experience to understand and do properly.

The goal of your expert system is to match up with each step of your Expert system with the appropriate level of expertise.

For most existing businesses, the biggest immediate reward of drafting their expert system in a given area is how this exercise reveals where they need to push steps down from the top two levels (Basic Expert and Top Expert) to lower levels. In many cases, a business can quickly increase its capacity by 30–50 percent or more simply by staffing down many of the steps in its expert system to a lower level in the pyramid.

In the example of our hypothetical law firm, this would include things like getting clerical staff involved in scheduling meetings and reminding clients of information they need to get to the firm prior to that meeting, better software that automates or semi-automates the invoicing of clients for work performed, or standardizing the core legal services to allow a less experienced attorney to do tasks previously performed by the senior partners of the firm (but that don’t require the latter’s deep expertise).

From all our years coaching business owners, we consistently see that most businesses have their best, most expensive “experts” doing too many of the steps of their informal expert system. As a result they struggle with capacity issues and poor margins, and are vulnerable to that “expert” getting hurt or otherwise leaving the business, taking with her all the know-how and institutional knowledge she gained from years of being the wizard inside the black box producing in this area of the business. If you want to scale your business exponentially, then you must reduce your company’s reliance on any one expert with formalized expert systems upon which you have trained and cross-trained your team.

Step Four: Control for Consistency
Now that you’ve got your written process, and have identified which level of expertise optimally goes best with each step, it’s time to refine your process to control for consistency. This is just another way of saying that you now need to look for ways to improve quality and reduce variability. Here are several key thoughts to help you do just this:

The more you can automate, semi-automate, and template, the easier it is for you to control for consistency. All it then takes is a sharp review of your template or automated steps to make sure they are accurate. These processes become great “embedded controls” to protect your business.
Streamline the process. The fewer the steps in any complete process, performed by fewer people, the fewer the potential problems.

Pay particular attention to the critical linkages. Script out the critical linkages between tasks and reinforce them.

Standardize wherever you can. This will help you accelerate the process, increase efficiencies, lower costs, increase impact, and improve quality.

Create your three “master” documents: your master timeline, your master checklist, and your master budget.

Capture institutional knowledge in a structured, searchable place. This includes detailed client notes not in the heads of your staff, but in searchable text in your CRM. It can also include an organized file of the associated documents for a specific project or client. If you don’t take steps now to capture this essential past history, there will come a day when a key team member leaves your company and you’ll have to scramble to re-create the institutional knowledge they took with them. Not only will this be financially expensive, but will also be incredibly stressful and emotionally painful.

Train and cross-train your team. Make sure that every key role in your Expert system has at least one fully trained understudy. Redundancies aren’t sexy, but they give you incredible peace of mind and business depth.

Step Five: Map Out the Key Components of Your Expert System to Refine First
Likely you don’t have any formal expert systems established right now, but you do have an informal collection of best practices that are in the heads of your key team members. Now that you’ve followed steps one through four to formally lay your expert system, it’s time to flesh out the system with the tools, training, and controls you need to enhance your expert system.

Don’t worry—I’m not suggesting you sit down and do this in one go, but rather to flesh it out over time.

Pick the piece of your Expert system—the “block”—that you think would either be easiest to refine, or would have the biggest impact for your business. Picking a block that you know you can successfully model in an expert system gives your staff a visible example of the value and operation of expert systems, and increases their confidence in attacking the next, more complex block.

Give this block a name (e.g., The “New Client Launch,” the “Quality Review Process,” the “Bid Selection Step,” etc.) to make it easier for you and your team to talk about.

Approach this block from four specific directions:

Critical Knowledge to Institutionalize: What is the critical know-how about this block of your Expert system that is locked in the heads of one or more key team members? Identify this institutional knowledge and brainstorm the best way to capture, store, and share it.

Tools to Enhance and Leverage: What tools, templates, and automation would make this block of your Expert system faster, cheaper, better?

Training to Design and Implement: What training and cross-training will team members need in order to be successful in using this expert system (or at least this block of your Expert system)? How could you formalize or “freeze” that training in easily accessible, updatable, and scalable systems?

Controls to Monitor and Ensure Quality: Consider what internal controls (visual, procedural, or embedded) would best help your business ensure that this block of your Expert system consistently works exceptionally well.

Step Six: Each Quarter Reevaluate Your Expert System to Prioritize the Next Block to Enhance and Refine
Each quarter, revisit your expert system and pick the next “block” to focus on and refine. It’s normal to take three to four quarters to really nail down a complete expert system for your company. Because these are the processes that produce the most value in your business, you’ll find your company greatly benefits from the time and attention you invest on each block as you and your team iterate and refine over the long term.

That was a lot I know.

For more ideas on how to scale your company may I suggest you access our free business owner toolkit. To access this free toolkit, including the 21 in-depth video trainings to help you scale your business and get your life back, just click here.

off   read more

8 Signs You May be Overpaying Your Taxes

October 16, 2014 @ 12:26 pm posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

It is scary to think that the average American loses more money to taxes each year than we do on food, clothing, and shelter combined. This year, we have been getting tons of calls from business owners and investors who feel they may have overpaid in taxes. The silver-lining with this is that as a result, more and more people are finally taking the steps necessary to stop the bleeding. More and more people are now finally taking the action steps needed to take control of protecting their bottom line from taxes with proactive tax planning.

So how exactly do you know if you are overpaying in taxes? The good news is…there are simple steps you can take to find out. To gauge your risk level of lost tax dollars, here are 8 signs to help you measure your risk potential:

  1. Recordkeeping:

Bad Sign: You do not have good bookkeeping systems in place: Ever heard of the saying “What gets measured gets managed”?  It is just as important to know how much money is coming into your business monthly as it is to know how much is going out. If you are not keeping track of your monthly expenses, you can easily lose out on some legitimate tax deductions!  Having accurate and timely financial information not only helps you to manage and grow your business…but it is also the foundation for an effective tax savings plan as well.

  1. Communication:

Bad Sign: If you do not meet with your tax advisor throughout the year, plan on paying higher taxes.  For those of us who plan on paying the least amount of taxes possible, proactive planning happens year-round.  If April 15th is the first time you are thinking about reducing taxes for last year, you have probably missed out on some big tax saving opportunities. Open the lines of communication with your tax advisor to ensure you are maximizing your tax deductionsthroughout the year.  Some of the most significant and impactful tax saving opportunities need to be implemented as part of your business’ operational system.

  1. Knowledge

Bad Sign: You have to explain your business operations to your tax preparer year after year.  Not all tax advisors are created equal. Taxes are a very specialized area and there are specific strategies for specific business industries. For example, there are special tax saving opportunities for people in the real estate business. There are also special tax strategies for those in the manufacturing industry. The strategies that work for those in the services industry may not benefit those who are in the retail industry. Make sure your tax advisor is well versed in the tax saving opportunities in your industry.

  1. Compensation

Bad Sign: You don’t have a plan on how to tax efficiently take money out of your business. There are tons of different ways to take profits out of your business and each of them has their pros and cons.  For example, if you are a C Corporation, you may save thousands of dollars in taxes by paying yourself a higher salary every year. If you are an S Corporation, the opposite may be true where you can save thousands to tens of thousands of dollars by paying yourself the least amount of salary possible. There are also some great ways for you to extract profits out of your business completely “Tax Free”.  If you don’t have a plan in place to know “how” to extract your company profits tax efficiently, you may be over-paying your taxes.

  1. Retirement Planning

Bad Sign: You are not currently taking advantage of tax deferred and/or tax free opportunities of retirement planning through your business. Ask yourself: Are you using retirement planning to significantly reduce your taxes currently? There are so many different types of retirement accounts that are available for business owners to save taxes today and save for retirement at the same time. If you pay taxes to the IRS and have not used retirement planning techniques in the past, you are probably overpaying your taxes.

  1. Fringe Benefits:

Bad Sign: You have never heard of the term “fringe benefits”. There are tons of tax free fringe benefits available where your company takes a tax deduction for perks they provide to you as the business owner (and it’s not taxable to you). There are over a dozen of these wonderful techniques including company cars, gifts, and Medical Savings Account to name a few. If you do not utilize tax free fringe benefits as part of your business planning, you may be overpaying your taxes!

  1. Personal and Business Deductions:

Bad Sign: Not knowing what items you can legally shift from your personal bucket into legitimate business deductions. In this day and age, it has become harder and harder for us to distinguish between personal vs. business items. How many of us use our personal cellphone for business? How about our cars? iPads? Laptops? All these personal items that you use day in and day out for your business may be legitimate tax deductions. If you don’t know how to shift personal items into business deductions, you may be overpaying your taxes!

  1. Tax Savings Plan:

Bad Sign: Not having a tax savings plan in place to ensure you and your business profits are protected from Uncle Sam. Incorporating all of the items we discussed above, the question you should be asking yourself is “What is my tax savings plan?” If you don’t know it, if you can’t verbalize it, then you probably don’t have one. Not having an overall plan on “how” you will save taxes for your business and you personally is the most common mistake costing taxpayers to overpay taxes year after year.

If you have answered No to one or more of the above, then you may be part of the thousands of business owners in the US who are overpaying in your taxes. In case you didn’t know, the only way to legally save taxes is with proactive tax planning. As we all know, it is not as important how much money we “make” rather how much of it we get to “keep”!

For additional free reports, tips, and strategies, don’t forget to visit our website at www.taxloopholes.com!

off   read more

The Battle for the Title: QRPs vs. IRAs

October 9, 2014 @ 12:17 pm posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

There has been a lot of buzz in the community about some of the benefits of QRPs. What exactly are QRPs? Do these benefits really exist? Or is it another scam of the month that we should all be weary of as real estate investors? The good news is…QRPs do actually offer a lot of the tax benefits that a traditional IRA does not. In this article, we will discuss some of the key differences and what you need to know as we approach the end of the 2014 year.

To start off, there are a handful different “types” of QRPs (qualified retirement plans). Some of the most commonly seen are 401(k)s, Simple 401(k)s, Safe-Harbor 401(k)s, and Self-Directed Solo(k)s. Each of these types of qualified retirement plans have different attributes in terms of contribution amounts, limits, and investment options. Of the above, the most commonly used vehicle for real estate investors is the Self-directed Solo(k).

There are several key differences to note when comparing the Solo(k) to the traditional IRA. One is the difference in contribution limits. While a traditional IRA generally has an annual contribution limit of up to $5,500 per person per year, the Solo (k) can allow for retirement contributions of $52,000 or more per person per year. Businesses with a spouse on the payroll can also contribute to the Solo(k). This means potentially being able to have retirement contributions of $100,000 or more each year that can reduce your taxes and be used for real estate investing. As you can see, this is significantly higher in dollar amount as compared with an IRA or a Roth IRA. This is a very significant difference especially if you are someone who is looking to maximize your tax deferred investing potential.

Another advantage that a Solo(k) has over the IRA is with respect to tax free Roth money. You may be familiar with the current income limitation that is in place to disallow higher income taxpayers to make contributions to Roth IRAs.  The Solo (k) on the other hand, typically comes built-in with a Roth bucket. Taxpayers generally can contribute to the Roth bucket of their Solo(k) without any income limitations. Essentially, the Roth Solo K allows businesses owners, regardless of their income level, to contribute and participate in Roth Solo K contributions. Depending on your age, income, and investment preference, the ability for a high income taxpayer to have a Roth Solo(k) growing tax free may be one of the best gifts from the IRS.

On the topic of investment preferences, those of you who have self-directed IRAs may be familiar with its restriction from investing funds in S Corporations. Fortunately for a loophole in the tax law, you can use your Solo (k) money to invest in S Corporations. In addition to the traditionally off-limit S Corporation, Solo (k) funds can also invest in most other types of legal entities such as LLCs, Partnerships, and C Corporations. On top of the seemingly endless types of investments offered by the ability to self-direct, Solo(k) plans also allow for an almost limitless opportunity to invest in most types of legal entities.

Now that we’ve talked about some of the benefits of the Solo(k), let’s discuss “who” can have a Solo(k). The Solo(k) is a retirement plan designed for the small business owner. How small is small you may be wondering? You qualify if you are a business owner or self-employed individual with no full time employees other than you and your spouse. One thing to note is that employing independent contractors in your business does not disqualify you from establishing a Solo 401k. Sole proprietors, independent contractors, C corporations, S corporations, partnerships and LLCs can qualify for this plan if the above requirement is met.

If you feel that a Solo(k) is a great investment vehicle for you, then you must be mindful of the two following deadlines:

  1. The account itself must be set-up before December 31, 2014 in order for contributions to reduce your 2014 taxes, and
  1. If you plan on making employee contributions, the employee deferral must generally also be made by December 31, 2014.

Keep in mind, you may also be able to make employer contributions to further decrease your tax bill for 2014.  The good news is that these contributions may be made as late as September or October of 2015 to still count as a tax deduction for 2014….the main thing is that the account itself must be set-up by December 31, 2014.

Here are a few key take-away points:

  • There are several different types of QRPs. The most common type used is the Solo(K)
  • Solo(k) can allow the account holder to potentially contribute more towards retirement each year than the traditional IRA
  • Solo (k) has more flexibility for investment choices as compared to an IRA and can allow taxpayers to put money towards a Roth bucket regardless of their income level.
  • Solo(k) s are available to small businesses as defined by the IRS. No legal entity is required to set-up a Solo(k).
  • Be wary of deadlines to open accounts and make contributions. There are ways to take a deduction up front and contribute at a later date if you set-up your plan correctly.

If you do not qualify for the Solo (k), don’t be discouraged. As we discussed earlier, there are a handful of other Qualified Retirement Plans (QRPs)  that offer similar benefits which you may be able to take advantage of.

Retirement investing is one of the most powerful tools when it comes to tax savings. Having the right type of retirement account could be the key to supercharging your wealth building.

If you haven’t already done so, be sure to download your FREE copy of our eBook Turn Your Retirement Funds into a Cash Machine by clicking HERE.

If you have questions regarding how to put your retirement funds to work for you, please call us at (877) 975-0975 and speak with one of our self-directed investing experts.

off   read more

Eight Tax Loopholes Using Lease Options

October 2, 2014 @ 2:06 pm posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

Believe it or not, one of the questions that we get asked very often is “What exactly is a Tax Loophole?”

It’s simple – a loophole is a tax incentive provided by our government as a way of encouraging the economy to grow. It should come as no surprise that the majority of tax loopholes are found in the areas the government would like us to concentrate on like investing in real estate. It’s classic “carrot and stick” psychology.

Many loopholes are quite well known. For example, if you own your own home you can usually deduct all of the interest you pay on your mortgage. Other loopholes are hidden little treasures. They take a bit more looking to uncover, but like most treasure, it’s very worthwhile.

Believe it or not, the government actually wants us to use lease-options as a creative financing strategy. In fact, they incentivize us for doing so by providing us with several Tax Loopholes specifically for lease options. There are tax benefits for lease option sellers as well as buyers. Want to know what they are? Read on to find out!

Loophole 1: Lease-Options Sometimes Provide Bigger Write-offs

For the buyer/optionee, 100% of the lease payments are tax deductible in the year paid (assuming you are using the property for business purposes). As compared to a traditional purchase, only the mortgage interest portion of the monthly payment is tax deductible.

Loophole 2: The Options Payment is not Taxable

For the seller/optionor, the options payment received is not taxable until the tenant exercises that option or when the option expires. What a wonderful loophole this is: to be able to receive a lump-sum of cash up front free from current taxes!

Loophole 3: Monthly Options Payment is not Taxable

For the seller/optionor, the options payment apportioned to the tenant’s monthly rent is not taxable until the tenant exercises that option or when the option expires. What a wonderful loophole this is: to be able to receive part of your monthly rent free from current taxes!

Loophole 4: Depreciation Advantage of Lease-Options

A Lease Options program leaves you owning the house until the tenant actually completes the purchase. As such, you still take the depreciation allowance and continue receiving all benefits of the real estate investment.  Also, cost segregation is still a great strategy that you can use to maximize your depreciation write-off with lease-options!

Loophole 5: Tax Deductions of Lease-Options

With a lease option, you as the owner retain all tax benefits relating to the property including expenses, insurance, repairs, and improvements. Since you still own the property legally, you retain all the tax perks!

Loophole 6: Use Lease-Options to Ensure Favorable Capital Gains Rate on Sale

A lease-option program set up to last for at least one year ensures that you have held the property for sufficient time to pay tax at the long term capital gains tax rate. Depending on the amount of gain you are looking at, using the lease option strategy can save up to 50% in taxes!

Loophole 7: Use Lease Options to Avoid Dealer Status

Dealer status is a bad word in the tax world. It is given to those who are in the active business of buying and selling real estate on a short term basis like Fix-N-Flips. Dealers at times may be paying 50% or more in taxes as compared to someone who is not a dealer. One strategy to avoid dealer status is to use lease-options. Lease-options allow you to avoid the dealer status if you can have the agreement set-up so that your holding period exceeds 365 days. This can save you over 50% in taxes if you are actively involved in real estate.

Loophole 8: Use Lease-Options to Conduct 1031 Like-Kind Exchanges

A lease option property held for at least a year is considered an investment property. When a tenant buyer purchases the property you can conduct a 1031 like-kind exchange by purchasing another property and deferring the tax due on your first property into the other property. This is a powerful strategy for any real estate investor but an especially powerful one for those who are in the business of flipping properties.

Does it ever seem to you that CPAs and Attorneys have their own language? They do! The better you can speak their “secret language”, the better the results you will have.

Want more strategies?

Be sure to visit our website to get an instant download of your FREE eBook on Turn Your Retirement Money into a Cash Machine and 5 Cash Flow Strategies for Real Estate Investors. To download your FREE eBook, please click HERE.

Are you ready to pay less tax? Call us at 1-877-975-0975 to get started on your tax reduction plan today! We can help you start paying less tax immediately.

off   read more

7 Common Tax Mistakes of New Real Estate Investors

July 8, 2014 @ 10:56 am posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

Over the years, I have come across thousands of real estate owners and small business owners across the U.S. and have unfortunately witnessed many mistakes that are costing thousands of dollars in over paid taxes. What a shame that so much money just going to waste and in Uncle Sam’s pocket. Let’s take some time to look at these mistakes and how we can avoid them:

1. Personal funds used for business and real estate expenses are nondeductible
Most real estate or business start-up often needs cash support from the owner to cover operational expenses. If you use your personal funds to pay for business or real estate related expenses it is very important to make sure you are clearly tracking the expenses. Any expenses that are incurred for the business or for real estate are generally deductible, even if you use your personal money.

2. Tipping the IRS will make me “Audit Proof”
If you over pay and tip the IRS, they do not care. What they do care about is if you under pay your taxes or cannot substantiate your deductions. So if you “tip” the IRS in one area, it doesn’t necessarily mean the IRS won’t make you pay penalties if you underpay in another area. To be on the safe side, it is always better to pay exactly what you owe, that is the best way to “audit proof” yourself. Make sure to track everything correctly and have the right documentation. Also make sure you are working with a knowledgeable advisor that can help ensure you are tracking and deducting everything correctly.

3. You are allowed more deductions by being incorporated
Forming a legal entity does not necessarily mean that you get more tax deduction. As indicated in #1 above, real estate or business related expenses may be deductible regardless of where it is paid from. If you do happen to have a legal entity that you operate your real estate business from, make sure to use it correctly. A mistake I often see if someone who has an S Corporation formed to reduce taxes but all income is still being paid to their personal name. If this describes what you are doing, you may want to make the change quickly to that your income is actually being paid to your legal entity.

4. Taking the home office deduction is a huge red flag to get audited.
The above statement used to be true, but those days are long gone. Because of so many people now able to work from home, the IRS cannot possibly audit all tax returns claiming home office deduction. As long as you keep excellent records to satisfy their requirements, you are fine. There is no need to fear an audit. You do not want to miss out on the benefits to taking the home office deduction.

5. If you don’t take the home office deduction, business and real estate expenses are not deductible.
If you do not take the home office deduction, all is not lost you can still claim many deductions for your real estate. You are still allowed to take deductions for your real estate maintenance supplies, business-related phone bills, travel expenses, wages paid to contract workers for property improvements, depreciation of equipment used, and other expenses related to running a home-based business,. These may still be legitimate tax write offs even if you don’t take the home office deduction.

6. Filing an extension gives you an extension to pay any taxes owed.
Filing an extension only allows you to extend the filing date of your tax return. It does not extend the time you have to pay the tax due. You may be charged penalties and interests from the date your taxes are due if they are not submitted on time.

7. Can’t Deduct General Expenses
Most real estate investors are great at deducting property specific expenses such as mortgage interest, management fees, property taxes, and insurance. What a lot of people miss out on are the general and overhead expenses that a lot of real estate investors have. Examples include car or travel expenses, marketing expenses, cell phones, and meals to name a few. As long as the general and overhead expenses are related to your real estate business, they are generally tax deductible items even though they are not specific to one particular property.

These are just a few of the mistakes I often see especially from newer investors. Educating yourself is the key to avoid overpaying taxes! There are many ways you can significantly reduce your tax bill … all it takes is knowing how.  For more tax strategies specifically for real estate investors, be sure to check out our Free eBook on 5 Cash Flow Strategies for Real Estate Investors by clicking HERE.

off   read more

De-Mystifying Your Tax Questions on Real Estate Investing

May 28, 2014 @ 11:50 am posted by Amanda Han CPA (Taxloopholes.com Tax Strategist)

As you know, here at Tax Loopholes we love the concept of using real estate as a wealth building vehicle. There are many tax benefits available to real estate investors but the issue sometimes is whether or not you understand the right ways to take advantage of them. As we head into summer this year, we wanted to share with you some of the most commonly heard myths this year.

Of course, it’s no wonder that a lot of people are frustrated when it comes to taxes and real estate. The US tax code is one of the most complex in the world and it just keeps getting more complex by the day. The tax laws have changed so much over the years that many people are confusing new laws and rules with outdated and incorrect ones. We wanted to take this opportunity to clear the air with some of the most common misconceptions when it comes to real estate and taxes to hopefully provide you with some guidance on maximizing your tax benefits:

  1. Myth: There is a limit on how much you can write off for your real estate losses on your tax return.
    Fact: The answer is yes and no. There are a number of strict rules that determine how much you can write off against your tax return on your real estate expenses that will actually offset your tax liability in any given year. This means that even though you capture and report all of your real estate expenses on your tax return, you may or may not actually get an immediate benefit on those expenses to offset your current tax liability. See the next “myth” on how you can avoid these strict IRS limitations.
  2. Myth: You must be a licensed realtor to get the unlimited tax benefits of being a “Real Estate Professional”.
    Fact: First off, the Real Estate Professional status is a great tax loophole that allows investors to bypass myth #1 and to be able to take unlimited tax write-offs on their investment properties. However, there are two rules you must meet before you can qualify as a Real Estate Professional. First, an individual must spend more time on real estate activities than non-real estate activities during the year. Second, an individual must spend more than 750 hours during the year involved in real estate activities in which the individual materially participates. Remember, you must meet both requirements to qualify as a REP.  On the other hand, there is a misconception that in order to qualify as a real estate professional, one must have a realtor’s license. That is a false assumption since there are no licenses that are required for a taxpayer to receive the benefits of being a REP…you simply must meet the 2 criteria’s above.
  3. Myth: You cannot write off the entire cost of improvements for your investment property. It must be capitalized and depreciated over its useful life.
    Fact: This is false. The amount you can deduct this year actually depends on your specific investment as well as when you made the improvements for your property. The Tax Relief Act provided a temporary 50% bonus depreciation deduction for certain types of improvements made to qualified improvement properties placed in service through December 31, 2013. So be sure to take advantage of this before filing your 2013 taxes this year!
  4. Myth: You can’t claim a home office deduction if you own real estate because it is a red flag for IRS Audits
    Fact: This is not entirely true. There are certain rules and guidelines you must meet before you can claim a home office deduction. You may take a deduction for home office expenses as long as the space you claim is exclusively used for business (i.e., a separate room, not your family room) and you regularly do some type of business in that space. If you own a real estate business or invest in a number of real estate properties and manage over these properties in your home office, you may qualify to take this deduction. As long as you qualify for this wonderful tax loophole, why not take advantage of it? The best part is there is actually a way to be able to take the tax deduction for a home office deduction and fly under the IRS radar too.

We all know that it’s important to keep ourselves educated and up to date with law changes. This could mean savings of hundreds to thousands of dollars in taxes year after year.

To help you protect yourself with some proactive tax strategies, be sure to get a free copy of our eBook: 5 Cash Flow Strategies for Real Estate Investors. This is now available to you as a Free download. Click HERE  to get your Free eBook today.

For more tax strategies and free educational information for your personal, business, and investing, visit our website at www.TaxLoopholes.com or call us at (877) 975-0975 and we will help you to increase your cash flow with cutting-edge tax saving strategies!

off   read more