Drew Miles Tax Planning Advice and Tax Savings Tips

Owners of more than one corporation can be determined as a Personal Service Corporation by the Internal Revenue Service when in actuality they are not. PSC’s are not eligible for graduated corporate tax rates and are required to pay a tax rate of 35% on their taxable income pursuant to IRC Section 11(b)(2).

An example of this problem is the case of Ronald Lykins, owner of Ronal Lykins Inc., a subchapter C corporation that offered tax and accounting services as well as financial advice. Because the advisory business grew substantially, Lykin formed the Lykins Financial Group to separate the financial services. Both businesses used one address and the same employees.

The Internal Revenue Service decided that Ron Lykins Inc. had become a PSC and would be subject to the 35% flat tax rate. Lykin appealed and the Tax Court ruled that Ron Lykin Inc. had not become a PSC in the split. The determination came because of the ownership test that states that the employees must own all stock (Lykin owned 100% of the stock) and that at least 95% of employee time is spent on qualified services.

Qualified services are defined as the fields of health, law, engineering, architecture, accounting, actuary, and the performing arts and consulting. Financial services are not a qualified service but it is possible for the employees to work for two firms at the same time, so the employees remained employees of the corporation even though they were working for the LLC for other purposes.

Pathfinder Business Strategies suggest that for clients to not be categorized as a PSC, several items need to be met. Corporations need to establish an independent business purpose for the management company; have multiple customers or clients for the management company; define its specific role in terms of sales, marketing, management, etc., as these are not considered personal services; and have appropriate contracts and invoices between the two companies.

Drew Miles says to document everything right to avoid a tax scam. Drew is an author, teacher, and international speaker. He worked as an attorney for 18 years before retiring in 2006 to concentrate solely on his commitment to serve his clients and expand Pathfinder Business Strategies’ scope of programs. His highly acclaimed book, Zero to Success, chronicles the steps every new business owner must take to ensure success. He has been featured in Forbes, the Dallas Morning News, American Banker and Yahoo Finance. To date, he has helped 4000 business owners save over $50 Million dollars in taxes. That’s why he’s known throughout the United States and Canada as The Tax Saving Attorney™.

The current economic downturn has prompted lawmakers to reconsider the loss carryback rules under the Worker, Homeownership and Business Assistance Act of 2009. This would provide tax relief to all businesses except for companies receiving payments under the Troubled Asset Relief Program (TARP). Most businesses have an opportunity to use business losses from prior tax years under this rule.

The previous carryback rules limited loss carrybacks to two years. Now, taxpayers can elect to carryback a net operating loss (NOL) for a period of one to five years, or a loss from operations for four or five years to offset taxable income in those preceding tax years. However, losses carried back five years may offset no more than 50 percent of the taxable income in the fifth year.

Taxpayers must do several things to make the special carryback election. First, the taxpayer must have the federal income tax return of the NOL year or an amended return for the applicable NOL. Second, the statement must clarify that the taxpayer is electing to use the new NOL rules under Revenue Procedure 2009-52. Third, the taxpayer must state that they are not a TARP current recipient for the years, 2008 and 2009. Finally, the taxpayer must specify the length (3, 4, or 5 years) that they will elect for the NOL carryback period.

More Internal Revenue Service specifics on Revenue Procedure 2009-52 and other tax advice can be found at  http://www.irs.gov/newsroom/article/0,,id=217370,00.html.

Drew Miles wants you to avoid tax scams by documenting everything right.  Drew grew up working in a family business on Long Island, NY.  After passing the New York State Bar, Drew established his own firm where he practiced for 18 years.  In 2006, he set out to concentrate solely on his commitment to serve his clients and expand Pathfinder’s scope of programs.

His unique approach combines what he has learned, not only from his formal legal education, but also his “informal” business education and 25 years of entrepreneurial experience, in the development of programs designed to educate people in the fine art of building and preserving wealth.

Drew is an author, teacher, and international speaker.  His highly acclaimed book, Zero to Success, chronicles the steps every new business owner must take to ensure success.  He has been featured in Forbes, the Dallas Morning News, American Banker, and Yahoo Finance.  To date, he has helped over 5,000 business owners save over $100 million dollars in taxes.  That’s why he’s known throughout the United States and Canada as the “Tax Saving Attorney”.