39
10 MOST EXPENSIVE TAX MISTAKES THAT COST BUSINESS OWNERS THOUSANDS EVERY YEAR PINNACLE TAX ADVISORY 230 N. SECOND ST #200 BRIGHTON, MI 48116 (810) 225-3690

Business owner powerpoint 2014 revised

Embed Size (px)

Citation preview

Business Owner PowerPoint

10 Most Expensive Tax Mistakes That Cost Business Owners Thousands EVERY YEAR

PINNACLE TAX ADVISORY230 N. SECOND ST #200BRIGHTON, MI 48116(810) 225-3690

1Welcome to Pinnacle Tax Advisory Business Owner Workshops. A series of proven strategies that will save you tens of thousands of dollars every year in taxes. Half of American taxpayers use third party professionals to complete their tax returns yet, according to the US Treasury Dept, 85% of us overpay. Lets ask

Are you Satisfied with the Amount You are Paying in Taxes every year?How Confident are you that you are taking advantage of all of the tax deductions, loopholes and credits that is given to us by the IRS?Is your Tax Advisor giving youProactiveAdvice on how to save on your taxes?Chances areYou are PAYING TOO MUCH!!!SOLVE YOUR MISTAKES NOW

Are you satisfied with the taxes you pay? Are you confident youre taking advantage of every available tax loophole or deduction? Is your tax advisor giving you proactive advice on how to save on taxes? Chances are you do pay too much tax. The good news is, you dont have to. You just need a better plan. In this series, were going to talk about some of the biggest mistakes that business owners make, then how to solve them.

2

Mission Statement

To bring extraordinary value to our taxpayer clientele by delivering concise, timely guidance of proven tax saving strategies.Serving Clients throughout the United States230 N. Second St #200Brighton, MI 48114810-225-3690www.pinnacletaxadvisory.com

Let me introduce our company. We are Pinnacle Tax Advisory. We have been helping clients put together proven tax strategies and preparing their taxes for almost a decade. We have clients throughout the United States and our headquarters are in downtown Brighton, MI. Please visit us at our website or check out our blog chuckyourtaxes.com. Now the number one Mistake business owners make is, you guessed it.3

#1: Failing to Plan There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesnt prevent that. William H. Rehnquist

The first mistake is the biggest mistake of all. Its failing to plan. It doesnt matter how good you and your tax preparer are with a stack of receipts on April 15. If you didnt know you could write off your kids braces as a business expense, theres nothing we can do.

4They fail to plan. The IRS Code is full of tax deductions for the small business owners. With proactive tax planning, you can make smarter and loftier choices What would you have changed if you knew you could completely write off your kids braces and added a swimming pool to your own backyard?

Why Tax Planning? Key to a Financial DefenseGuarantee Your Results

Why Didnt My CPA Tell Me That?

5So, what exactly is tax planning? Tax coaching is about giving you a plan for minimizing your taxes. What should you do? When should you do it? How should you do it? Tax planning gives you two powerful advantages: First, its the key to your financial defenses. As a business owner, you have two ways to put cash in your pocket. Financial offense is making more. Financial defense is spending less. For most of us, taxes are our biggest expense. So it makes sense to focus our financial defense where we spend the most; Second, tax planning guarantees results. You can spend all sorts of time, effort, and money promoting your business. But that cant guarantee results. Or you can set up a medical expense reimbursement plan, deduct your daughters braces, and guarantee savings. Most common question we hear is Doesnt my CPA do that for me now? or Im sure my CPA would tell me where I can save on taxes, wouldnt he? Its his job, right? Producing tax returns or monthly trial balances or providing payroll services are very different disciplines than delivering strategic tax blueprints to minimize tax obligations while reducing the likelihood of an audit.

Taxable IncomeEarned incomeInterest/dividendsCapital gainsPension/IRA/AnnuityRent/royaltyAlimonyGambling winningsIllegal income

Add Taxable Income minus Adjustments to Income minus Deductions times Tax Bracket minus Tax Credits

6Lets start by taking a quick look at how the tax system works. This will lay a foundation for understanding the specific strategies well be talking about soon.The process starts with income. And this includes most of what youd think the IRS is interested in: Earned income from wages, salaries, bonuses, and commissions. Profits and losses from your own business. Interest and dividends from bank accounts, stocks, bonds, and mutual funds. Capital gains from property sales. Pensions, IRAs, and annuity income. Alimony and gambling winning. Even illegal income is taxable. The IRS doesnt care how you make it; they just want their share! (The good news is, if youre operating an illegal business, you can deduct the same expenses as if you were running a legitimate business. If youre a bookie, you can deduct the cost of a cell phone you use to take bets.

Add Taxable IncomeAdjustments to IncomeIRA contributionsMoving expenses SE taxSE health insuranceRetirementAlimonyStudent loan interest

minus Deductions times Tax Bracket minus Tax Credits minus Adjustments to Income

7Once youve added up total income, its time to start subtracting adjustments to income. These are a group of special deductions, listed on the first page of Form 1040, that you can take whether you itemize deductions or not. Total income minus adjustments to income equals adjusted gross income or AGI. Adjustments to income are also called above the line deductions, because you take them above AGI.Adjustments include IRA contributions, moving expenses, half of your self-employment tax, self-employed health insurance, self-employed retirement plan contributions, alimony you pay, and student loan interest.

Deductions/ExemptionsMedical/dentalState/local taxesForeign taxesInterestCasualty/theft lossesCharitable giftsMiscellaneous itemized deductions

Add Taxable Income minus Adjustments to Income minus Deductions/Exemptions times Tax Bracket minus Tax Credits

8Once youve determined adjusted gross income, you can take a standard deduction or itemized deductions, whichever is greater. The standard deduction for 2014 is $6,200 for single taxpayers, $9,100 for heads of households, $12,400 for joint filers, and $6,200 each for married couples filing separately. Tax deductions reduce your taxable income. If youre in the 15% bracket, an extra dollar of deductions cuts your tax by 15 cents. If youre in the 35% bracket, that same extra dollar of deductions cuts your tax by 35 cents.You can also deduct a personal exemption of $3,950 for yourself, your spouse, and any dependents.

Tax Brackets

Add Taxable Income minus Adjustments to Income minus Deductions times Tax Bracket minus Tax CreditsRateSingleJoint10%0015%9,07618,15125%36,90173,801128%89,351148,85133%186,351226,85135%405,101405,10139.6%406,751457,601

Once youve subtracted deductions and personal exemptions, youll have taxable income. At that point, the table of tax brackets tells you how much to pay. You may also owe self-employment tax, which replaces Social Security and Medicare for sole proprietors, partnerships, and LLCs. Youll also owe state and local income and earnings taxes.

Some types of income arent taxed at the regular rate. For example, tax on qualified corporate dividends and long-term capital gains is capped at 20%.

Theres also a 3.8% unearned income Medicare contribution on investment income for single taxpayers earning more than $200,000 and joint filers earning more than $250,000. For purposes of this new rule, investment income includes interest, dividends, capital gains, rental income, royalties, and annuity distributions.

Oh, and dont forget that your itemized deductions and personal exemptions start phasing out once your income hits certain levels. For 2014, those are $254,200 for singles and $305,050 for joint filers.

The bottom line here is that tax brackets arent as simple as they might appear. Your actual tax rate can be quite a bit higher than your supposed tax bracket.

Tax CreditsFamily creditsEducation creditsForeign taxGeneral business Low-income housingRenovation

Add Taxable Income minus Adjustments to Income minus Deductions times Tax Bracket minus Tax Credits

10Finally, youll subtract any tax credits. These are dollar-for-dollar tax reductions, regardless of your tax bracket. So if youre in the 15% bracket, a dollars worth of tax credit cuts your tax by a full dollar. If youre in the 35% bracket, an extra dollars worth of tax credit cuts your tax by the same dollar. Theres no secret to tax credits, other than knowing whats out there.

Two Kinds of Dollars

Add Taxable Income minus Adjustments to Income minus Deductions times Tax Bracket minus Tax Credits

Pre-Tax DollarsAfter-Tax Dollars

11Ultimately, there are two kinds of dollars in this world: pre-tax dollars, and after-tax dollars. Pre-tax dollars are great. And after-tax dollars arent bad. But theyre not as good as pre-tax dollars.

Keys to Cutting TaxEarn nontaxable incomeMaximize deductions and creditsShift income: later years, lower bracketsYou lose every time you spend after-tax dollars that could have been pre-tax dollars.

12So heres the bottom line:You lose . . . every time you spend after-tax dollars . . . That could have been pre-tax dollars.Let me repeat that.You lose . . . every time you spend after-tax dollars . . . That could have been pre-tax dollars.Were going to spend the rest of this presentation talking about how to turn after-tax dollars into pre-tax dollars.Were going to use three primary strategies.First, earn as much nontaxable income as possible.Second, make the most of adjustments to income, deductions, and credits. Theres really no magic to it, other than knowing whats available.Finally, shift income to later tax years and lower-bracket taxpayers. This includes making the most of tax-deferred retirement plans and shifting income to lower-bracket children, grandchildren and other family members.

#2: Audit Paranoia

13The second big mistake is nearly as important as the first, and thats fearing, rather than respecting the IRS.What does the kind of tax planning were talking about do to your odds of being audited? The truth is, most experts say it pays to be aggressive. Thats because overall audit odds are so low, that most legitimate deductions arent likely to wave red flags.Audit rates are actually at historic lows. For 2012, the overall audit rate was just one in every 100 returns. The IRS primarily targets small businesses, especially sole proprietorships, and cash industries like pizza parlors and coin-operated laundromats with opportunities to hide income and skim profits. In fact, they publish a series of audit guides that you can download from their web site that tell you exactly what theyre looking for when they audit you!Take a look at the bottom of the chart. Youll see that the IRS audits just one-half of one percent of S corporations and partnerships. If youre really worried about being audited, you might consider reorganizing your business to help fly under the radar.

#3: Wrong Business Entity

14The next mistake is choosing the wrong business entity. Most business owners start as sole proprietors, then, as they grow, establish a limited liability company or corporation to help protect them from business liability. But choosing the right business entity involves all sorts of tax considerations as well. And many business owners are operating with entities that may have been appropriate when they were established but just dont work as effectively now.

Sole Proprietorship

Report net income on Schedule C

Pay SE tax up to 15.3% on income

Pay income tax on net income

15I cant make you an expert in business entities. But I do want to walk through one popular choice to illustrate how important this question can be.If you operate your business as a sole proprietorship, or a single-member LLC taxed as a sole proprietorship, you may pay as much in self-employment tax as you do in income tax. If thats the case, you might consider setting up an S corporation to reduce that tax. If youre taxed as a sole proprietor, youll report your net income on Schedule C. Youll pay tax at whatever your personal rate is. But youll also pay self-employment tax, of 15.3% on your first $117,000 of net self-employment income and 2.9% of anything above that. Starting in 2013, youll also pay a new 0.9% surtax on anything above $200,000 if youre single, $250,000 if youre married filing jointly, or $125,000 if youre married filing separately.Lets say your profit at the end of the year is $80,000. Youll pay regular tax at your regular rate, whatever that is. Youll also pay about $11,000 in self-employment tax. The self-employment tax replaces the Social Security and Medicare tax that your employer would pay and withhold if you werent self-employed. How many of you plan to retire on Social Security?

S-Corporation

Split proceeds into salary and income

Pay FICA up to 15.3% on salary

Avoid FICA/SE tax on incomeSalaryIncome

Pay income tax on salary and income

16An S corporation is a special corporation thats taxed like a partnership. The corporation pays you a reasonable wage for the work you do. If theres any profit left over, it passes through to you, and you pay the tax on that income on your own return. So the S corporation splits the owners income into two parts, wages and pass-through distributions.Heres why the S corporation is so attractive.Youll pay the same 15.3% tax on your wages as you would on your self-employment income. BUT theres no Social Security or self-employment tax due on the dividend pass-through.

Employment Tax ComparisonS-Corp FICASalary$40,000FICA$6,120Net$73,880

Proprietorship SEIncome$80,000SE Tax$11,304Net$68,696

S-Corp Saves $5,184

Lets say your S corporation earns the same $80,000 as your proprietorship. If you pay yourself $40,000 in wages, youll pay about $6,120 in Social Security. But youll avoid employment tax on the income distribution.And that saves you $5,184 in employment tax you would have paid without the S-corporation.17

#4: Wrong Retirement Plan

18Now lets talk about the fourth mistake: choosing the wrong retirement plan. If youre looking to save more than the $5,500 limit for IRAs, you have three main choices: Simplified Employee Pensions, or SEPs, SIMPLE IRAs, or 401ks. Im not here to make you an expert on retirement plans. But I can help you decide pretty quickly if the plan you have is right for you or if you should be looking for something more suited for your specific needs. So bear with me, even if the next few slides look intimidating. These are some very powerful strategies.

Simplified Employee PensionTurbocharged IRAContribute up to 25% of incomeMax. contribution: $52,000Must contribute for all eligible employeesContributions directed to employee IRAsNo annual administration

19The SEP is the easiest plan to set up because its just a turbocharged IRA: If youre self-employed, you can contribute up to 25% of your net self-employment income. If your business is incorporated and youre salaried, you can contribute 25% of your covered compensation, which is roughly the same as your salary. The maximum contribution for 2014 is $52,000. If youve got employees, youll have to contribute for them, too. You generally have to contribute the same percentage for your employees as you do for yourself. However, you can use whats called an integrated formula to make extra contributions for higher incomes.The money goes straight into employee IRA accounts. Theres no annual administration or paperwork required. The SEP is easy to adopt, easy to maintain, and flexible. If theres no money to contribute, you just dont contribute. But the contribution is limited to a percentage of your income. If you set up an S corporation to limit self-employment tax, youll also limit your SEP contribution.

SIMPLE IRADefer 100% of income up to $12,000Age 50+ add $2,500 catch upBusiness match or PSContribute to IRAsNo annual administration

20The next step up the retirement plan ladder is the SIMPLE IRA. This is another turbocharged IRA that lets you contribute more than the usual $5,500 limit: You and your employees can contribute up to $12,000. If youre 50 or older you can make an extra $2,500 catch up contribution. If your income is under $48,000, that may be more than you could sock away with a SEP. (Thats because $12,000 is more than 25% of whatever you could contribute to a SEP.)But - you have to match everyones deferral or make profit-sharing contributions. You can match everyones contribution dollar-for-dollar up to 3% of their pay, or contribute 2% of everyones pay whether they defer or not. If you choose the match, you can reduce it as low as 1% for two years out of five. The money goes straight into employee IRAs. You can designate a single financial institution to hold the money, or let your employees choose.Like the SEP, theres no set-up charge or annual administration fee. The SIMPLE IRA may be best for part-time or sideline businesses earning less than $48,000. You can also hire your spouse or children, and they can make SIMPLE contributions. Well be talking more about those strategies in a few minutes.

401(k)Defer 100% of income up to $17,500Age 50+ add $5,500 catch upEmployer contributes up to 25% of covered compMax. contribution: $52,000 Loans, hardship withdrawals, rollovers, etc.Simplified administration for individual 401(k)

21The final step up the ladder is the 401k. Most people think of 401ks as retirement plans for bigger businesses. But you can set up whats called a solo or individual 401k just for yourself.The 401k is a true qualified plan. This means youll set up a trust, adopt a written plan agreement, and choose a trustee. But the 401k lets you contribute far more money, far more flexibly, than either the SEP or the SIMPLE.You and your employees can defer 100% of your income up to $17,500. If youre 50 or older, you can make an extra $5,500 catch up contribution.You can choose to match your employees contributions, or make profit-sharing contributions up to 25% of their pay. Thats the same percentage you can save in your SEP on top of the $17,500 deferral.The maximum contribution for 2014 is $52,000 per person, plus any catch up contributions.You can offer yourself and your employees loans, hardship withdrawals, and all the bells and whistles the big boys offer their employees.401ks are generally more difficult to administer. There are anti-discrimination rules or whats known as top-heavy rules to keep you from stuffing your own account while you stiff your employees. There are Safe-Harbor 401ks available but we will cover that in another series. If you operate your business by yourself, you can establish an individual 401k with less red tape. And again, you can hire your spouse and contribute to their account.

Defined Benefit PlanGuarantee up to $210,000Contribute according to age and salaryRequired contributions412(i) insured planDual plansAgeRegular412(i)45$80,278$164,97050$133,131$258,01955$211,448$395,63460$236,910$450,112Projections based on retirement at age 62 with $165,000 annual pretax income.

22If youre older, and you want to contribute more than the $52,000 limit for SEPs or 401ks, consider a traditional defined benefit pension plan:Defined benefit plans let you guarantee up to $210,000 in annual income. You can contribute and deduct as much as you need to finance that benefit. Youll calculate those contributions according to your age, your desired retirement age, your current income, and various actuarial factors. A 412(i) plan, which is funded entirely with life insurance or annuities, lets you contribute even more. Defined benefit plans have required annual contributions. But you can combine a defined benefit plan with a 401k or SEP to give yourself a little more flexibility.

#5: Missing Family EmploymentChildren age 7+First $6,200 tax-freeNext $9,075 taxed at 10%Reasonable wagesWritten job description, timesheet, checkAccount in childs nameFICA/FUTA savings

23Now lets talk about the fifth mistake: missing family employment. Hiring your children and grandchildren can be a great way to cut taxes on your income by shifting it to someone who pays less.Yes, theres a minimum age. They have to be at least seven years old. Their first $6,200 of earned income is taxed at zero. Thats because its the standard deduction for a single taxpayer even if you claim them as your dependent. Their next $9,075is taxed at just 10%. So you can shift a lot of income downstream.You have to pay them a reasonable wage for the service they perform. The Tax Court says a reasonable wage is what youd pay a commercial vendor for the same service, with an adjustment made for the childs age and experience. So, if your 12-year-old son cuts grass for your rental properties, pay him what a landscaping service might charge. If your 15-year-old helps keep your books, pay him a bit less than a bookkeeping service might charge. Does anyone have a teenager who helps with your web site? What would you pay a commercial designer for that service?Continued on Next Page

#5: Missing Family EmploymentChildren age 7+First $6,200 tax-freeNext $9,075 taxed at 10%Reasonable wagesWritten job description, timesheet, checkAccount in childs nameFICA/FUTA savings

24To audit-proof your return, write out a job description and keep a timesheet. Pay by check, so you can document the payment. You have to deposit the check into an account in the childs name. But it doesnt have to be his pizza-and-Nintendo fund. It can be a Roth IRA for decades of tax-free growth. It can be a Section 529 college savings plan. Or it can be a custodial account that you control until they turn 21. Now, you cant use money in a custodial account for your obligations of parental support. But private and parochial school arent obligations of parental support. Sleepaway summer camp isnt an obligation of parental support.Lets say your teenage daughter wants to spend two weeks at horse camp. You can earn the fee yourself, pay tax on it, and pay for camp with after-tax dollars. Or you can pay her to work in your business, deposit the check in her custodial account, and then, as custodian stroke the check to the camp. Hiring your daughter effectively lets you deduct her camp as a business expense.If you hire your child to work in an unincorporated business, you dont have to withhold for Social Security until they turn 18. So this really is tax-free money. Youll have to issue them a W-2 at the end of the year. But this is painless compared to the tax youll waste if you dont take advantage of this strategy.

#6: Missing Medical Benefits Employee benefit plan Married: Hire spouse (no salary necessary) Not married: C-corp Reimburse employee for medical expenses incurred for self, spouse, and dependents Works with any insurance Use your own insurance Supplement spouses coverage

25Now lets talk about health-care costs. Surveys used to show that taxes used to be small business owners biggest concern. Now its rising health care costs.If you pay for your own health insurance, you can deduct it as an adjustment to income on Page 1 of Form 1040. If you itemize deductions, you can deduct unreimbursed medical and dental expenses on Schedule A, if they total more than 10% of your adjusted gross income. But most of us dont spend that much. What if there were a way to write off medical bills as business expenses? There is, and its called a Medical Expense Reimbursement Plan, or Section 105 Plan.This is an employee benefit plan, which means it requires an employee. If you operate your business as a sole proprietorship, partnership, LLC, or S corporation, youre considered self-employed. So, if youre married, hire your spouse. If youre not married, you can do this with a C corporation. But you dont have to be incorporated. You can do it as a sole proprietor or LLC by hiring your spouse. The one exception is the S corporation. If you own more than 2% of the stock, you and your spouse are both considered self-employed for purposes of this rule. Youll need to use another source of income, not taxed as an S corporation, as the basis for this plan.Continued on Next Page

MERP/105 Plan Major medical, LTC, Medicare, Medigap Co-pays, deductibles, prescriptions Dental, vision, and chiropractic Braces, fertility treatments, special schools Nonprescription medications and supplies

Lets assume youre a sole proprietor and youve hired your husband. The plan lets you reimburse your employee for all medical and dental expenses he incurs for himself his spouse (which covers you) and his dependents. This includes all the expenses you see listed here. Major medical insurance, long-term care coverage, Medicare, and Medigap insurance. Co-pays, deductibles, and prescriptions. Dental, vision, and chiropractic care. Braces for your kids teeth, fertility treatments, and special schools for learning-disabled children. It even covers nonprescription medications (when prescribed by a physician), vitamins and herbal supplements, and medical supplies. The best part is, this is money youd spend anyway, whether you get a deduction or not. Youre just moving it from a nondeductible place on your return, to a deductible place.

26

MERP/105 Plan Written plan document No pre-funding required Reimburse employee Pay provider directly Bypass 10% floor Minimize self-employment tax

Youll need a written plan document, which we can provide you. Youll need to track your expenses under the plan, which we can also help with. But theres no special reporting required. Youll report reimbursements as employee benefits on Schedule C, Form 1065, or Form 1120. Youll save income tax and self-employment tax.Theres no pre-funding required. You dont have to open a special account, like with Medical Savings Accounts of flex-spending plans. You dont have to decide how much to contribute, and theres no use it or lose it rule. Its just an accounting device that lets you characterize your family medical bills as business expenses.You can reimburse your employee or pay health-care providers directly. Lets say your husband needs to pick up a prescription. He can use his own money, and you can reimburse him. Or he can use a business credit card and charge it to the business directly.If you have non-family employees, you have to include them too. You can exclude employees under age 25, who work less than 35 hours per week, less than nine months per year, or who have worked for you less than three years. You can also exclude employees covered by a collective bargaining agreement. Non-family employees may make it too expensive to reimburse everyone as generously as youd cover your own family. But, if youre offering health insurance, you can still use a Section 105 plan to cut your employee benefit cost. You can do it by switching to a high-deductible health plan, and using a Section 105 plan to replace those lost benefits.

27

Health Savings AccountHigh deductible health plan - $1,250+ deductible (individual coverage) - $2,500+ deductible (family coverage)

Plus

Tax-deductible Health Savings AccountContribute & deduct up to $3,300/$6,600 per yearAccount grows tax-freeTax-free withdrawals for qualified expenses

28If a medical expense reimbursement plan isnt appropriate, consider the new Health Savings Accounts. These arrangements combine a high-deductible health plan with a tax-free savings account to cover unreimbursed costs.To qualify, youll need a high deductible health plan with a deductible of at least $1,250 for single coverage or $2,500 for family coverage. Neither you nor your spouse can be covered by a non-high deductible health plan or Medicare. The plan cant provide any benefit, other than certain preventive care benefits, until the deductible for that year is satisfied. Youre not eligible if youre covered by a separate plan or rider offering prescription drug benefits before the minimum annual deductible is satisfied.Once youve established your eligibility, you can open a deductible savings account. You can contribute up to $3,300 for singles or $6,600 for families. You can use it for most kinds of health insurance, including COBRA continuation and long-term care premiums. You can also use it for the same sort of expenses as a Section 105 plan.The Health Savings Account isnt as powerful as the Section 105 Plan. Youve got specific dollar contribution limits, and theres no self-employment tax advantage. But Health Savings Accounts can still cut your overall health-care costs.

#7: Missing A Home OfficePrincipal place of business: exclusively and regularly for administrative or management activities of your trade or businessyou have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

Source: IRS Publication 587

29The home office deduction is probably the most misunderstood deduction in the entire tax code. For years, taxpayers feared it raised an automatic audit flag. But Congress has relaxed the rules, so now its far less likely to attract attention.

Your home office qualifies as your principal place of business if: 1) you use it exclusively and regularly for administrative or management activities of your trade or business; and 2) you have no other fixed location where you conduct substantial administrative or management activities of your trade or business. This is true even if you have another office, so long as you dont use it more than occasionally for administrative or management activities.

You have to use your office regularly and exclusively for business. Regularly generally means 10-12 hours per week. To prove your deduction, keep a log and take photos to record your business use. You can claim a workshop, studio, or separately identifiable space you use to store products or samples. The space doesnt have to be an entire room. If you use it for more than one business, both have to qualify to take the deduction.

#7: Missing Home OfficeDetermine BUP of homeDivide by roomsSquare footageEliminate common areas

1441500

100

30Once youve qualified, you can start deducting expenses. If youre taxed as a proprietor, youll use Form 8829. If youre taxed as a partnership or corporation, theres no separate form, which helps you fly under the radar.

First, youll need to determine business use percentage of your home. You can divide by the number of rooms if theyre roughly equal, or calculate the exact percentage of square footage. You can exclude common areas like halls and stairs to boost that business use percentage

Continued on Next Page

#7: Missing Home OfficeDeduct BUP of expenses:Mortgage/property taxes (better than Schedule A)Utilities/security/cleaningOffice furniture/decorDepreciation (39 years)Increase business miles

31Next, youll deduct your business use percentage of rent, mortgage interest, and property taxes.

Youll depreciate the business use percentage of your homes basis (excluding land) over 39 years as nonresidential property.

Finally, youll deduct your business use percentage of utilities, repairs, insurance, garbage pickup, and security. If business use percentage for specific expenses differs from business use percentage for the overall home such as high electric bills for home office equipment you can claim the difference as direct expenses.

Claiming a home office can also boost your car and truck deductions. Thats because it eliminates nondeductible commuting miles for that business.Continued on Next Page

#7: Missing Home OfficeWhen you sell:Recapture depreciationKeep tax-free exclusion

32You can use home office expenses to shelter profits, but not below zero. If your home office expenses exceed your net business income, you can carry forward those excess losses to future years.

When you sell your home, youll have to recapture any depreciation you claimed or could have claimed after May 6, 1997. You can still claim the $500,000 tax-free exclusion for home office space unless its a separate dwelling unit.

If this all seems like too much work, theres a new safe harbor method that lets you claim $5 per square foot for up to 300 square feet of qualifying home office. However, using the safe harbor method might not let you claim nearly as much as the traditional method. We can help walk you through the calculations to see which method is best for you.

#8: Missing Car/Truck ExpensesAAA Driving Costs Survey (2013)VehicleCents/MileSmall Sedan46.4Medium Sedan61.0Large Sedan75.04WD SUV77.3Minivan65.3Figures assume 15,000 miles/year; $3.49/gallon gas

33Now lets talk about car and truck expenses. I dont want to take too much time here, but I do want to point out the most common mistake clients make with these expenses. The deduction of 56 cents a mile for business is the same for everyone, no matter what or where they drive. Do you think we all spend the same to operate our cars?It might surprise you to see how much it really costs to operate your car. And its not exactly 56 cents per mile! Every year, AAA publishes a vehicle operating cost survey. Costs vary according to how much and where you drive but if youre taking the standard deduction for a car that costs more than 56 cents/mile, youre losing money every time you turn the key.If youre taking the standard deduction now, you can switch to the actual expense method if you own your car, but not if you lease. You cant switch from actual expenses to the mileage allowance if youve taken accelerated depreciation. By the way, the same rules apply for the standard deduction of 23.5 cents/mile for moving or medical expenses as well as the 14 cents/mile standard deduction being in service for a charitable organization.

#9: Missing Meals/EntertainmentBona fide business discussionClientsProspectsReferral SourcesBusiness colleagues50% of most expenses Home entertainmentAssociated entertainment

34Lets finish up with some fun deductions for meals and entertainment. The basic rule is that you can deduct cost for meals with a bona fide business purpose. This means clients, prospects, referral sources, and business colleagues. And let me ask you when do you ever eat with someone whos not a client, prospect, referral source, or business colleague? If youre in a business like real estate, insurance, or investments, where youre marketing yourself, the answer might be never. Be as aggressive as you can with what you define as bona fide business discussion!The general rule is, you can deduct 50% of your meals and entertainment, so long as it isnt lavish or extraordinary. The IRS knows you have to eat, so you cant deduct it all. But theyll meet you halfway. How many of you entertain at home? Do you ever discuss business? Are you deducting those meals, too? Theres no requirement that you eat out. Dont forget to deduct home entertainment expenses too!You can deduct entertainment expenses if they take place directly before or after substantial, bona fide discussion directly related to the active conduct of your business. You can deduct the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips.

#9: Missing Meals/EntertainmentHow much?When?Where?Business purpose?Business relationship?

35You dont need receipts for expenses under $75, but you do need to record the five pieces of information listed in your business records.You should try to record this information daily if possible. The IRS wants to know the cost of the meal, when and where it took place, the business purpose of your meal, and your business relationship with your guest.

#10: Missing Tax Coaching ServiceTrue Tax Planning Tax Blueprint Review ReturnsFamily, Home, and JobBusinessInvestments

36Now that you see how business owners miss out on tax breaks, lets talk about the biggest mistake of all.Assuming As a business owner, you hire accountants and CPAs to do your bookkeeping, payroll, human resources and to file your taxes on time. There is an underlying assumption, that as they perform their duties they would be looking for ways to save you money in taxes. Unfortunately, this is not normally the case. Accountants and CPAs focus their time on GAAP methods and compliance while a Certified Tax Coach is disciplined in researching and validating specific strategies that lower tax obligations within the guidelines of the IRS Code. These elite tax professionals network, communicate and collaborate to bring best strategies for you the business owner.

What you get when hiring a Tax Strategist:A Tax Planning Blueprint tells you what to do, when to do it, and how to do it.Complete a questionnaire about your current revenue and expenses, projections and goals.Review your last three years tax returns to find savings that may have been overlooked.A written tax plan that addresses your family, home, and job, your business, and your investments.

FREE Mini Tax strategy sessionCall us to schedule Your FREE 30 min ConsultationThese meetings are usually done over the internet but other arrangements can be met.The first meeting is a get to know you, your business(es) and what tax strategies you currently have in place and of course what percentage of tax are you paying per dollar of income.The second meeting is reporting back to you our findings. We will discuss how much we believe you can save by implementing our proven strategies. IF you like what you see then we will take the next step.

The BEST Part

Our Plans are 100% GuaranteedIf you are not satisfied that the plan does not do exactly what it says it will do, we will immediately refund your tax advisory blueprint.

We would like to invite you experience the value of our services with not just one but two free, no obligation tax strategy sessions. The first 30 minutes we will review your business entity choices, profit and loss statements, financial statements, balance sheets and trial balances. We will look at the last 3 years tax returns for missed opportunities. The second meeting is a broad overview of the tax plan where we identified potential areas for tax savings for past, present and future tax years. If we agree that we can save you a considerable amount of money in taxes, then we will then forge a consulting relationship. One of the best parts of working with a Certified Tax Strategist is we put our money where our mouth is by giving a 100% Refund Guarantee to our Tax Minimization Blueprint. If we have not given you proven, legal and ethically sound strategies to considerably minimize your taxes, we will refund 100% of your tax blueprint consultation fee. 37

Meetings Can Be HeldJoinMe Internet Meeting Place

Conference Call

Face to FacePinnacle Tax Advisory, its principals and employees, reserve the right to charge a per diem to reimburse travel expenses incurred for meetings held outside a 50 mile radius from its headquarters in Brighton, MI.

Meetings can be held

Over the Internet through JoinMeConference Call Face to Face

Pinnacle Tax Advisory, its principals and employees, reserve the right to charge a per diem to reimburse travel expenses incurred for meetings held outside a 50 mile radius from its headquarters in Brighton, MI.38

230 N. Second St #200 | Brighton, MI | 48116(810) 225-3690Website and Emailwww.pinnacletaxadvisory.cominfo@pinnacletaxadvisoryFacebook and LinkedIn Pinnacle Tax AdvisoryTwitter and YoutubeChuckYourTaxes

We want to thank you for spending time with us discussing briefly how combining an action plan with the right business partner can bring significant value to your business. We invite you to follow us on LinkedIn, Facebook, Youtube and Twitter.39

Chart10.0040.0040.0410.0290.013

Series 10.50%0.50%3.60%2.40%1.20%

Sheet1Series 1S-Corp0.40%Partnership0.40%Schedule C: $100,000+4.10%Schedule C: $25,000-99,9992.90%Schedule C: $0-24,9991.30%To resize chart data range, drag lower right corner of range.

Chart1802000

East

Sheet1WagesSE TaxDividendividendEast802000

Chart140101040

East

Sheet1WagesSE TaxDividendividendEast40101040

Chart175001240024500150001330032000225001420039500300001510046500

SEPSIMPLE401(k)IncomeContribution

Sheet1300006000090000120000SEP7500150002250030000SIMPLE12400133001420015100401(k)24500320003950046500

Chart17500150002250030000

SEP Contribution

Sheet130,00060,00090,000120,000SEP Contribution7500150002250030000

Chart111400133001420015100

SIMPLE Contribution

Sheet130,00060,00090,000120,000SIMPLE Contribution11400133001420015100

Chart121500290003650042000

401(k) Contribution

Sheet130,00060,00090,000120,000401(k) Contribution21500290003650042000