About the Author

Dr. Jeff Camarda CFA®, E.A., PhD Financial & Retirement Planning Previous Certifications CFP®, ChFC®, CLU®, CFS®, BCM™, MSFS® Founder and Chairman, Camarda Wealth Advisory Group “One of America’s best financial advisors” – Barron’s Host of the Wealth Education Radio show

As seen in:

Hello, I’m Jeff Camarda. Not to brag, but to give you some context on my expertise as the author of this report, I’d like to share some background information. Feel free to skip ahead directly to the report if you’d like.

I’ve been in the investments business since I began as a stockbroker in New York in 1984. Since then I’ve earned the financial designations and degree* below, including a PhD in Financial and Retirement Planning from American College. I also founded a radio show called Wealth Education Radio, have been quoted in the national financial press for decades, and have written hundreds of articles and reports on wealth matters. The Wall Street Journal has done four feature articles on my advice, and I’ve been personally named as one of the best financial advisors in America by Barron’s** and WORTH magazines. I am “Certified Background Checked” by the National Ethics Bureau, and our firm is rated “A+/Accredited” by the Better Business Bureau. I founded Junior Achievement of Clay County (around since 1919, JA teaches financial literacy to children K-12), and serve on the Executive Board of the Boy Scouts of America, North Florida Council, as well as a Cub Scout Den Leader and Boy Scout Merit Badge Counselor.

The firm I founded, Camarda Financial Advisors, was first registered as an SEC Registered Investment Advisor in 1993, and has provided fee-only portfolio management since 1998. This firm is and always has been a fiduciary—meaning it must put its clients’ interests first, unlike insurance agents, stockbrokers, bank staff, and many other “financial advisors” who may work on commissions and put their employers’ and personal compensation interests ahead of clients’ interests. Besides Barron’s and WORTH, our firm has been named repeatedly as a top advisor by the likes of Bloomberg’s Wealth Manager, Financial Advisor Magazine, and the National Association of Board Certified Advisory Practices. I serve as Chief Investment Officer and Chairman of our Portfolio Management Board. This Board makes all investment decisions for all Camarda portfolio clients.

In a field every bit as complicated as medicine or law, I am still astounded that the only regulatory requirements to “practice” are very basic licenses which can be acquired by those of average intelligence in only a few weekends of study without any background in finance (as a young chemist in 1984, I was able to pass the Series 7 “full service stockbroker” exam cold the first time with less than a week from opening the book to taking the test!). These basic licenses are all the vast majority of advisors have, and I think it’s a shame that this is the case and that most investors can’t tell the difference.

At Camarda, we believe education, integrity, and clients-first service are the keys to excellence, and hope you find value in the information below. Thanks for reading, Jeff Camarda.

**According to Barron's, "it is accepted in the industry that the advisors ranked by Barron's represent the top one percent (1%) of their profession." Barron's determines the best advisors based on "assets under management, revenue, quality of practice and philanthropic work," as well as "client retention and time in the business." Barron's also notes "critically important, we also carefully check the regulatory record of each advisor we rank." Camarda is especially proud to have achieved this milestone the very first time it was evaluated by Barron's. *Masters of Science in Financial Services (financial planning), Chartered Financial Analyst (CFA®, investments, stock and bond quantitative analysis), Chartered Financial Consultant (ChFC®, financial planning), E.A. (a personal, business, & estate tax credential allowing unlimited representation of clients before IRS), Certified Funds Specialist (CFS®, investments), Board Certified in Mutual Funds (BCM™, investments), and Chartered Life Underwriter (CLU®, focused study of life insurance and annuity contracts).

Tax Control—the Master Ingredient to Wealth

Do you feel like your wealth’s being taxed to death? Making plenty of money but not keeping enough? High taxes can be one of the biggest obstacles preventing you from building wealth faster. With taxes, it’s not who you know but what you know (and there’s a lot to know!). There are many tax advisors, but many barely scratch the surface, and quality tax advice can be remarkably elusive. That’s no surprise since studies have shown even IRS employees only understand between 55% and 83% of basic tax facts. Many people feel that their tax advisor is not proactive or knowledgeable or strategic enough, but truly sophisticated tax advice can mean the difference between treading water and getting rich. Tax control is truly the master wealth ingredient. It’s not what you make, but what you keep that counts, and for too many people, taxes are a hidden siphon draining wealth year after year, which prevents your kitty from really ever filling up. Those that have access to best tax practices build wealth amazingly faster than those that don’t. The concepts you’re about to learn about in The 9 Biggest Tax Mistakes and How To Avoid Them may help you get richer faster, retire years earlier, have more to spend in retirement, and really accelerate your wealth objectives. Tax Mistake #1—Believing the Tax Code Is Set in Stone

The Internal Revenue Code is one of the most complex, convoluted, and internally contradictory documents ever created—and it keeps changing almost by the week. Various studies conclude that even IRS employees only understand between 55% and 83% of basic tax facts. As of 2006, the Federal tax rules totaled over 13,000 pages—and the rules have grown more complex since. Many of these rules exist to try to counter the tax reduction strategies that the most proactive taxpayers (and their advisors) keep coming up with to legally keep wealth in their families’ pockets, instead of the IRS’s. But for IRS, it can be a game of catch up, with the best advisors finding new opportunities faster than IRS can close old ones. Great complexity can breed great opportunity, and it’s been said that “sophisticated taxpayers take advantage of the complexity to find loopholes that lower their tax liability.” Tax avoidance is perfectly legal, and often remarkably easy, if you know where to look. Too many taxpayers (and their tax advisors) believe in “death and taxes” inevitability, meaning you “gotta pay what you gotta pay.” The truth is, it is perfectly legitimate to use the portions of the tax code that support the reasonable position that results in the least tax—or no tax at all! This is a key concept; tax liability is a function of code interpretation, and astute advisors mine the complexity of the code to build the most favorable positions for taxpayer clients.

The opportunities to legitimately save enormous dollars can be profound, if you know where to look. Unfortunately, some tax preparation professionals may not be the right place. According to a Money magazine study cited in an MIT book, not one tax prep professional was able to

produce a correct return! Often, even the most basic tactics, like controlling taxable investment income, or maximizing tax deductions, are completely missed. Good tax advisors are worth their weight in gold, but can be very hard to find, especially if you don’t know how to tell the difference.

If you own a business, are a high income professional, or have significant investment accounts (whether you are retired or not), you may be leaving way too much money on the table, and this report may be worth a lot of money to you. I hope it is! Tax Mistake #2—Missing Tax Arbitrage Opportunities

Arbitrage just means taking advantage of different prices for the same thing in different markets. If you can buy gold for $1500/oz in London and sell it for $1700 in Dubai, you can make a riskless $200/oz—that’s arbitrage.

For instance, tax arbitrage—using the differences between tax rates applicable to different kinds of entities (C vs. S corporations, for instance) or different individuals (you and your children, for instance)—can save some people a real bundle. Another way to apply this concept is doing IRA ROTH conversions (paying the tax on the IRA in exchange for the remainder to grow tax free) in years when you are in a low tax bracket because you may have business losses, lost a job, or high deductions from medical expenses, for instance. Ditto for postponing IRA distributions until after retirement when earned income (and hence your tax bracket) is lower or absent. A great example of arbitrage is the so-called corporate inversion, a super “loophole” (now closed due to rules update as explained under Mistake #1) that basically let corporations swap high U.S. tax rates for near-zero ones in places like Ireland; this was perfectly legally under the law before it was changed—and still legal for the companies that had the foresight to seize the opportunity ahead of the curve. Tax Mistake #3—Being an Employee Instead of Self-Employed For those of you who can make this choice, being self-employed is a no-brainer. You can deduct a lot of legitimate expenses, set up your own deductible retirement plan, and use numerous, creative, complete above-board ways to cut taxes and build your own wealth more rapidly. Shy of starting your own company, the independent contractor route is the most feasible for the average reader. Here, your pay is shown on a 1099 instead of a W2. The pay number on the 1099 is the beginning line on the business return you will file against which expenses are deducted to arrive at taxable income (a number usually much, much lower than where you wind up as an employee, even if you try to deduct the same items as “employee business expenses”). I won’t get into the technical detail here, but, trust me, the difference can be huge, as most CPAs will probably tell you. If you do this, you can file as a sole proprietor (using the Schedule C on your regular 1040 tax return) or actually set up a corporation or LLC (LLC is preferred—see my report on asset protection), and then file the appropriate business return (usually an 1120S, but possibly 1065), which dovetails into your personal return. While filing a business return can seem a bit of a bother (but is usually fairly simple and cheap), running your independent contractor work through your own company can yield many benefits, including asset protection and a much lower audit profile. While I appreciate that many readers can not avail themselves of 1099 status without changing jobs, if there is any possibility at all, you should explore it. There are probably significant tax and other savings to your employer as well, so it is worth exploring with your

owner, manager or HR. If the nature of your work meets the various IRS tests and can qualify, the wealth opportunity is significant for all concerned (except IRS, which is why it is not a fan of 1099 work!). Tax Mistake #4—Not Using Real Estate Investment Tax Breaks

“Tax reform”, back in 1986, killed the real estate tax breaks so soundly that most of us don’t even remember how sweet they were anymore. Many taxpayers (and their advisors) incredibly still don’t know about the “real estate professional” loophole that opened up in the early 1990s, and that’s a darn shame for those of us that have amassed a bit of a real estate portfolio, whether business property, or commercial or residential rentals. In the right fact pattern—you have a spouse who has the time to spend, say 15 hours a week ostensibly looking after the real estate (keeping books, checking ads, painting or directing the painters, etc.) and is not doing much else occupationally—you get most of the old real estate write-offs back and can net them against your other income, possibly saving a huge slug of tax. If you have real estate besides your home, are frustrated by the post-1986 “passive loss” rules, and have a willing and able spouse, you really need to get a second opinion on this (Camarda has an endless supply of them).

And make no mistake, what you have heard about real estate investing being responsible for more millionaires in the U.S. is probably true. If you are careful, patient, and willing to spend some time, it can be a very effective and tax advantaged way to build wealth and ongoing income. Tax Mistake #5—Not Maxing out Tax-Deductible Retirement Plans This one’s pretty simple, and you probably know it even if you don’t do it. Money you contribute to a 401k, 403b, TSP, or other deductible plan at work comes right of the top of your gross income, meaning you save the income tax, and your share of the FICA (Social Security and Medicare) and other applicable taxes. FICA runs at around 7%, so if you are in a 25% income tax bracket, you save at least 32% right now (if in the highest 39.6% bracket, you save nearly 47%!). Do if you don’t contribute $10,000, you take home maybe $6,800. If you invest instead, the whole $10,000 goes to work for you. And while you will ultimately have to pay tax on withdrawals, you will benefit because:

1. Chances are the savings discipline will make you wealthier down the road than not mending your earn-it and spend-it ways;

2. You can use tax arbitrage as explained in Mistake #2 to sharply reduce or even eliminate the tax.

Tax Mistake #6—Not Planning around the AMT The Alternative Minimum Tax has been around since 1970 and was designed as a way to force fat cats with smart advisors to pay at least some tax instead of avoiding it via the numerous complicated loopholes that existed at the time (of course, the smart guys just found other loopholes.) These days, it mostly ensnares middle income or higher income people who don’t (or whose advisors don’t) know enough or take the time to plan around it. All admit this is very unfair, but it continues because a) the tax code is broken and there is not the political gumption to fix it, and b) the Federal government spends far more than it takes in and really needs the money.

Increasing contributions to your deductible retirement plan, making investments more efficiency, and timing large, deductible items like property taxes into favorable years are a few ways to avoid this tax. There are a lot of other smart things you can do to plan around this tax, but the technical complexity of this particular nastily not-so-little tax precludes discussion here. Get the knowledge or find a really smart tax advisor, and most of all, plan before December 31—once the New Year’s ball drops, many planning options evaporate!

Tax Mistake #7—No Strategy or Ignoring Tax Efficient Investing Strategies This is without question the most fundamental mistake made by taxpayers and their tax advisors/preparers. For some reason, this industry is almost hopelessly re-active. Most clients and preparers don’t even look at the fact patterns until after the first of the year, when nearly all potential strategies are impotent, except the old “well, you could put some more into your IRA.” The reason this is so important is the tax “game” has four quarters and they all end on December 31st. After that, the score is mostly set in stone; it just is not visible until your preparer does the tax accounting. In order to win the tax game, you need to play the game before it is over. Unlike the vast majority who don’t “plan” until after the end of the tax year, the smartest taxpayers and best tax advisors begin before the tax year begins, or at worst by summer of the tax year. Start planning much later than that, and even the best tax mind is a Monday morning quarterback.

As you accumulate wealth, taxes on investment returns become more and more important. Mutual funds with a lot of turnover are particularly tax inefficient since taxpayers are forced to pay tax on any gains or income the fund recognizes during the tax year, regardless of whether or not the investor themselves takes any income or recognized any gain. This has been widely viewed as unfair since implemented the late 1980s as part of tax reform, but widely ignored by taxpayers for decades, causing many to overpay. ETFs and single stocks are much more efficient in this regard. Deferred annuities are some of the most highly taxed products around—with really vicious LIFO and ordinary income tax treatment—but widely sold and swallowed as being tax shelters! Bond and CD income gets taxed at your highest bracket, but dividend income from stock sources enjoys a lower capital gains-type rate. Making stock changes at high market levels needlessly can exacerbate capital gains, and too many people still don’t do tax loss harvesting each year, which can save tens of thousands or more. All of the preceding has to do with non-qualified (non-IRA-like money), but there are lots of smart strategies for IRAs beyond the arbitrage discussed above. For instance, it is smart to put ordinary income rate (top marginal rate) assets like bonds in IRAs, but capital gains rate assets outside where they will enjoy the lower rate. Otherwise, in the worst cases, you can effectively pay about double the available tax rate! Worse yet, if the capital gains asset is one you might pass on at death, you may wind up paying the highest marginal rate instead of zero tax by way of the at death basis step up! Tax Mistake #8—Not Planning an Estate Freeze If your estate is likely to grow to taxable levels (right now over about $5.5M for individuals, including everything you own, which includes life insurance death benefits, but not so long ago it was only $600K, and with the fiscal situation, there’s no telling if it will stay as high as it is), everything over the exemption amount could be taxed at rates that start at 18% and got to 40% fast. An estate freeze caps the taxable value at current levels, limiting or eliminating tax. There are a lot of ways to do this, some much better than others, but many exposed

taxpayers are never advised to prevent what could be a huge problem while there is still time. This oversight exists at all wealth levels. For instance, James Gandolfini (Tony from The Sopranos) left a $70M estate, and needlessly paid some $44M in estate taxes . . . and he had some elaborate (but maybe not so good) estate planning in place. Tax Mistake #9—Not Using Tax-Free Vehicles, Like 529s and (Especially) ROTHS Even for those who have developed advanced strategies to sharply reduce taxes from professional or business income and developed estate plans that allow significant wealth to pass tax free from generation to generation, basic tools like 529s and ROTHS can be extremely powerful. Though each has restrictions on free access, when used in accordance with the rules (which are actually pretty livable), their tax-free nature can really supercharge your wealth creation. To use a simple example, let’s say we invest $100,000 for 20 years at 10% net return. We will assume a blended tax rate of 30%, which is about halfway between the top income and long-term capital gains rates. In simple terms, a tax-free investment compounds at the full 10%, but the taxable one would only compound at 7% (10%-30% tax). In 20 years, the tax-free account is worth $672K, the taxable one is worth $386K (only about half a much). This is a super example of the power of tax control in building wealth. The difference in results is huge, but can be completely obscured unless you actually crunch the numbers!

Put Your New Knowledge to Work!

So that’s it! If you have an interest in getting better acquainted with me or my firm, the follow offer may be of interest to you. If you are a business owner, I’ve written some additional tips below. Best of luck in cutting taxes and getting richer, faster!

To help investors with assessments to help increase wealth, my firm offers a free Portfolio Stress Test, which you can obtain by calling us at 1-800-262-1083. Part of our Portfolio Stress Test involves helping you review tax strategies. If you choose to do this yourself, may I suggest that you re-read this report several times and do some outside research to be sure to be well-grounded in the material before expecting to draw reliable conclusions and action plans on your own? Taxes are a particularly complex and error-prone area, and we have really just scratched the surface on opportunities and dangers with my 9 Mistakes report. You should feel confident that you are well steeped in the concepts, can apply them effectively, and have found the many tools you’ll need. In writing this report, I’ve tried to simplify the process for you, but you’ll still need to understand what needs to be done, where to find the data you’ll need, and then actually remember to make yourself do it thoroughly and on an ongoing basis. And remember, getting the feedback of even the most well-intentioned of your existing advisors may draw you into a “leave well enough alone” myopia that may salve all egos but leave your cupboards barer than they might otherwise be, especially if they make a lot of money on your relationship and perhaps would prefer you not dig too deep (even if they don’t have things they’d rather you’d not know and even if they might be tempted to spin answers in fear of losing your business). Of course, there is an even easier way than doing it alone, and I encourage you to try it. Our free analysis, if nothing else, can serve as a valuable independent benchmark against which to judge your existing advisor and serve as a basis for potential improvements.

Camarda’s FREE Portfolio Stress Test™ is conducted by a licensed, credentialed professional without cost or obligation, and can help you to get a detailed “bead” on some of the important factors, as applicable to your personal situation, regarding your current strategy. The

results of this discussion—which our licensed investment practitioners will conduct free and entirely without effort on your part—can yield valuable pointers on “trouble spots” in your planning and portfolio that you can use in any way you see fit, even if you want to stay where you are or choose to go it alone. Knowledge is power, and this test will likely give you plenty that you can put to use right away. To schedule this important test, call us at 1-800-262-1083 (or 1-888-CAMARDA), fax us at 904-278-1070, or email me, Jeff Camarda, personally at j@camarda.com, and tell us you want the FREE Portfolio Stress Test™. Be sure we get your phone numbers and email address so we can easily and quickly set this up for you.

You may ask why Camarda is willing to give so much valuable, professional service away for free. There are two simple reasons. One, and most importantly, we feel a profound obligation to “do good” by helping the investing public maximize their financial opportunity. In a dark and stormy sea of misinformation, it is very important to us to serve as a beacon of sorts, to “light the way” and truly help people get where they want to go. This obligation goes beyond corporate cliché, and is a deeply driven and felt company value. Expanding financial education, to help people lead richer and better lives, is very important to us, and to me, personally, as firm founder and leader. The other reason is more practical: some of you may come to believe that Camarda represents a better way, and choose to use us to manage some of your financial affairs, or to refer us to others who may. But that part, if it comes, will be for later. For now, we are more than happy to only deliver this important, customized advice to you (at no cost and without pressure), simply to serve you and those you love. What happens after that is entirely your call.

Our beliefs in this regard are well stated by this quote from George Merck. Merck has throughout its long history been one of the most visionary and altruistic of pharmaceutical firms. In all of my extensive reading and study of business, I have yet to find a corporate philosophy that better reflects Camarda’s “corporate DNA,” to borrow a phrase from Jack Welch, GE’s legendary CEO. In 1950, George Merck said:

“I want to . . . express the principles which we in our company have endeavored to live up to . . . Here is how it sums up . . . We try to remember that medicine is for the patient. We try never to forget that (the excellence we strive for) is for the (clients). It is not for profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we remembered it, the larger they have been.”

Many people do not feel that “Wall Street” firms live up to this principal, and you may not as well. Still, this theme and many, many others from leaders of visionary companies that have driven great social good, pretty well sum up how we feel at Camarda. Profits are important, but not most important; they spring naturally from first doing what is right. Put the people first, those that choose to become clients, and those who, as is their right, do not. Do what is right and best for people, not what may seem best (at least in the short term) for us. Do that, and we cannot help but do well, because of the good we do, first, for them. It has always amazed me, in modern corporate America, how many firms seem to ignore this simple truth, that companies must first and continuously serve well, and that lasting prosperity is a function of the good delivered. This attitude allows us to feel passionately good about what we do each day. We have been very fortunate to enjoy robust growth and to endure strongly, even through the Great Crash of 2008, but I have always felt that this is merely a by-product of our core values. Perhaps because of this, we have been quite fortunate to welcome a great many new clients over the years, many of which have first “met” us by reading reports such as this one. It has been my pleasure to write this report for you, and I hope that you will act on the information to brighten the financial future for you, and those you care about, while it is still

fresh on your mind, before the torrent of life drives this opportunity for enhanced financial security from your grasp. So seize the day! I’m looking forward to helping you to join the happy ranks of those investors who truly feel they’re better getting where they want to go.

Again the Portfolio Stress Test™ is FREE, without cost, obligation. Use it in any way you see fit: as a discussion platform to optimize your holdings at your current advisor, as the basis of the investment management you decide to do on your own, or as an introduction to the wealth management services that Camarda provides to hundreds of investors just like you. However you use it, we believe you’ll find uncommon insights to help guide your financial decisions, and better target the investment results you really want. To schedule this important test, call us at 1-800-262-1083 (or 1-888-CAMARDA), fax us at 904-278-1070, or email me, Jeff Camarda, personally at j@camarda.com, and tell us you want the FREE Portfolio Stress Test™. Be sure we get your phone numbers and email address so we can easily and quickly set this up for you. All the best to you and your family, Jeff Camarda, CFA®, E.A., PhD.

The Biggest Business Tax Mistakes The following is reprinted from a new report I’ve written called “The 9 Biggest Tax Mistakes Business Owners Make & How to Correct Them.” While it was primarily written for business owners, there is much to be gained here for any taxpayer, and I encourage you to have a peek.

“The collection of taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny.”

- Calvin Coolidge

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase

one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all

do right, for nobody owes any public duty to pay more than the law demands.” - Judge Learned Hand

Having the Wrong Buy/Sell Plan

In some cases, “stock redemption” style buy/sell plans (as opposed to “cross purchase” types) can result in needless taxation when one partner dies and the survivor(s) buy them out. Here’s why: with a cross purchase, the tax-free life insurance proceeds are paid to a partner, who then takes them and buys the dead partner’s stock; this purchase increases the surviving partner’s tax basis, so when eventually sells his share, capital gains are smaller and more of the sale proceeds are a tax-free return of basis. With the stock redemption style, the insurance money goes directly to the company, wasting the tax-free benefit of the insurance and keeping the

survivor’s tax basis the same. If you have a buy/sell, getting a second opinion and update review could save you a bundle. This would also be a good time for a cost/benefit analysis on the life insurance, to see if you could get more benefit for less money. Camarda provides the services discussed here, too.

Letting the Buyer Set the Terms When You Sell a Business

When you negotiate to sell a business, you and the buyer are at cross-purposes when it comes to tax treatment. You want as much value allocated to goodwill, personal goodwill, and going concern value since this shifts more taxable value to lower-rate capital gains treatment, and less to highest rate ordinary income/earned income treatment. This is especially important to avoid since the business sale itself will probably push you into the highest bracket, if you are not already there. Under current law, this is something like 40-46%, and very likely going up, vs. 20% for capital gains (also probably going up). That’s a difference of 400 grand on a $2M sale, not exactly chicken feed no matter who you are. The buyer is going to want to shunt value to “earn-out” things like a personal consulting contract for you, fast depreciation period assets, and so on, to accelerate write-offs and manage their own tax position.

The important thing to remember is that you need good tax counsel as part of the negotiation process, since, like the buyer, you want to protect your own tax position; once a deal is cut it is much harder to finesse the tax angles. The less tax they pay, the less you actually receive. Higher taxes mean a much lower net on the business sale, and you want to pay your cards from an after-tax in-your-pocket perspective, instead of getting infatuated with deal heat, only to lament at leisure later.

Did I mention we do buy/sell transaction structure and business brokerage consulting?

Not Using a Medical Reimbursement Plan If You Can Medical reimbursement plans are really one of the great unsung heroes of the tax control

saga. As most of us painfully remember, medical expenses are barely deductible, and ONLY IF we itemize instead of taking the standard deduction, and ONLY IF such personal deductions are not phased out because of our income or chiseled down by the AMT rules, and ONLY IF they survive all that and still amount to more than 7.5% of our adjusted gross (not bottom-line taxable) income. This smoke-and-mirrors calculation really epitomizes the fetid feint-and-bloat of the early 21st century U.S. tax system, but I wax political, and don’t want to be misconstrued, especially since I reverently believe in Health Care, especially my own. For a family with $200K in AGI, this means the 1st fifteen grand of medical expenses will never be deductible, even if one manages to leap through the previous hoops. And fifteen grand is a pretty high bar, so unless someone’s really sick, it does not even pay to add up the receipts, which is probably why you stopped doing this long ago, if you ever did.

Still, if you are like most of us, you spend substantial sums on this industry, between insurance premiums, deductibles, vitamins and Band-Aids, and other health-maintenance items, which one could argue even include gym dues, crystal-gazing, massage, and aroma therapy. (Hair and nail care might prove a tad aggressive.)

Medical Reimbursement Plans (or MRPs, authorized under section 105 of the Internal Revenue Code, a colossus pushing 10,000 sections, and growing) give us the opportunity, in the right setting, to run all this stuff on a fully-tax-deductible basis (meaning a $1.00 Band-Aid only costs $0.60 after taxes and $18,000 in insurance premiums “only” $10.800).

In the worst cases, these savings can be worthwhile, and in the best, they are phenomenal. If you have one, make sure it’s tuned up; if you don’t, better check on your options before losing another hand to Uncle Sam. (Yes, you can call us, we know all about them.) Not Income Splitting with Your Kids

This is a great boon to families, a way to give meaningful “gifts” to your kids on a tax deductible basis. Find a way to employ your children (they really need to do something you can document, but rocket science is not required, making copies and carrying out the [business] trash will suffice). The benefits? You get to shunt your high-bracket income to your kids’ low/no bracket rates, which can save the family thousands or tens of thousands given the current “progressive” tax structure which makes tax-free lower levels of income and even subsidizes it with de facto-welfare tax “refunds,” even when no tax has been paid. Your kids have the right to file their own returns, and their earned income (as opposed to the radioactive “Kiddie Tax” investment income) is taxed at very low rates and can generate valuable deductions as well. This is tax planning 101, and if you have not been encouraged to do it by your tax advisor, you might want to consider why. If you need help, we can give you some very good ideas on this, as you probably surmised.

Missing Real Estate Write-Offs Super-Accelerated Depreciation—Old Section 179

We shouldn’t have to mention this, but we see this slam-dunk missed often enough in our tax practice that we feel duty bound to remind you of it. Instead of having to stretch the write off of asset purchases over several to many years, which, essentially, is what depreciation does, most businesses can now write off up to $250K per year of qualifying purchases and save the tax now. In a 40% bracket, that’s a cool $100K of tax savings in your pocket. Again, this is such a basic technique that I am almost ashamed bringing it up, but the oversight pops up often enough that you should be sure you are taking advantage of it. (We can tell by taking a quick look at your return.)

Missing Deductions for Legitimate Business Expenses

This is really one of my pet peeves. Far too many business people (largely on the advice of their too-conservative, too-uninformed, or too-work-adverse tax advisors) simply do not write off perfectly legitimate expenses and wind up essentially doubling their costs for these overlooked business items. I am firmly convinced that many tax preparers would rather see clients pay excess tax than face the bother of possibly having to explain their methodology (or lack thereof) of tax accounting! Commonly missed areas are business use of personal autos, travel and entertainment where at least some business/work is conducted, fuel, business items purchased on personal checks or credit cards (set up dedicated business account and cards and use them religiously!), and so on. An important point is that it be arguably deductible because of reasonable business purpose. Don’t be afraid (or let your tax adviser convince you to be afraid) to take legitimate deductions. You would be amazed at some of the extremely aggressive positions that I have seen pass muster on audit. A good way to start this is to go through your personal check registers and credit card statements (all of them) and categorize expenses that reasonably should be including on the business books. (Guess who can help!)

Sloppy Books Here’s a bonus “mistake,” but really too important not to include now that I have nearly

finished this report. If you keep sloppy books (or don’t keep books at all), invariably errors will creep in, expenses will be missed, and needless tax will wallop you. We have seen instances where non-taxable loan proceeds (a couple hundred grand in one case) were carelessly added to the income statement instead of the balance sheet, overstating taxable profit by a huge amount. If we had not been called in to clean up the books and tax position on this case—because the owner got finally fed up at the poor service he suspected he was receiving—he would have paid something like $100K in extra tax, and no one (neither he or his previous high-dollar advisor) might ever have known. It does not matter who does the books, you, your staff, or a paid outside accountant; unless they really know what they are doing, you can be really getting soaked even if your frustration never rises to the “fed up” level. What really matters is you are sure you have someone that really knows the craft and truly cares about getting you an accurate and tax-controlled result. Also, remember that tax accounting and “regular” financial accounting can have very different rules, and it can be better to run a set of tax books along with the regular books you use to steer the business the whole year rather than trying to “pull them together” months after the fact, when your tax preparer is swamped and can’t give it the time it needs, even if he wanted to. Doing it right the first time usually costs less time, money, and tax than letting things pile up to the fermentation point. Did I mention we do books?

Wrapping It All up into Tax Savings Congratulations on actually finishing this pretty dry material (my wife feels, and I agree, that the only thing exciting about tax savings is spending them!). The best way to apply this information is to review your situation, point by point, against the concepts applied here. You can do this yourself, but you probably won’t like it, or do a very good job unless your business is already taxes and financial planning. You can ask your existing advisor to do it, but they will probably charge you, and you have to wonder that if they did not bring this stuff up to you already, how good a job will they do going forward? Or, you can take advantage of the remarkable offer I am about to make you. I call it our “total business review,” an extremely valuable service that we offer on a completely FREE basis. Before I get into all the details of what you’ll get from this service, I need to tell you why we offer it without charge so you take the offer seriously. The simple reason is that it represents extremely effective marketing for us. While of course not everyone hires us, enough folks are impressed with the skill and diligence we demonstrate when we meet that we get enough new business out of it that we can afford to give away the service to all who call and still make money. Even if you don’t choose to become a client, you might refer us to someone that can use us or remember us down the road when things change. However things break, we know this will be a win-win (we get more business, and you will get a first class analysis to use in any way you see fit) with us, by yourself, or with your existing advisor (perish the thought!). This I can pretty well guarantee.

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