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”.

The House of Representatives voted on December 3, 2009 to extend the estate tax rate for 2009 into 2010. The estate tax is the transfer of property to heirs or family members and the exemption amount is the amount each person can pass free of federal estate taxes.

The estate tax extension plan was enacted under the George W. Bush administration as the Economic Growth and Tax Relief Reconciliation Act of 2001. Initially, the act provided an increase in exemption tax rates followed by a gradual decrease per year.
The scheduled exemption rate per year was 50% for 2002, 49% for 2003, 48% for 2004, 47% for 2005, 46% for 2006, 45% for 2007, 2008, and 2009. The estate tax amount would have fazed out to 0% for 2010.

Under this tax plan, there would have been a 0% estate tax rate for 2010. The revised extension allows a $3.5 million exemption per individual ($7 million for married couples) and a top rate of 45 percent.

The repeal of the estate tax rate is critical but the Senate is likely to go along with this temporary fix, while preserving the option to adjust the permanent levels further later and to add a provision for inflation indexing of the exemption amount.

Drew Miles says to document everything right to avoid a tax scam.  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”.

Avoid being looked at as though you are running tax scams by documenting everything the right way.  Take automobile expenses for instance.  A solid tax-planning tip for business expense deductions is to deduct the use of your automobile expenses. Business mileage is vehicle use for business tasks such as client meetings, mileage to the office, a trip to Office Depot for business supplies and business-related long distance travel.

The Internal Revenue Service issued the 2010 standard mileage rates in its news release, IRS-2009-111 on December 3, 2009. The new mileage rates are slightly lower than 2009. The IRS mileage rates are estimated based on lower transportation costs in comparison to the year before. Beginning January 1, 2010, the standard mileage rates for vehicle use are $.50 per mile for business use; $.16.5 for medical or moving purpose; and $.14 per mile in service for a charitable organization.

Auto mileage deductions can be tracked by using a business mileage diary. Business destination and mileage are logged on a continual basis. This task can be frustrating, however, one way of minimizing the monthly logs is to track your odometer reading for three straight months and multiply the result by four. Another method for business owners who have high (80%) business mileage is to track only your personal mileage and deduct from the overall mileage.

Keeping a good documentation system is a worthwhile investment of time and consistency. It justifies business tax deductions, updates and organizes business records and audit proofs your business so that you save money and avoid being accused of running a tax scam on the IRS.

Drew Miles 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™.

Everyone wants to be financially free or as Robert Kiyosaki states, “to get out of the rat race”. Drew Miles and Pathfinder Business Strategies encourage clients to avoid using what some would say are tax scams but instead reduce their debt by paying the correct amount on taxes instead of over-paying them. Taxpayers reduce their current business and personal debt and gain income that can be applied to long-term retirement plans. The road to increased tax savings is to audit proof your expenses through a well-documented system using a six-column tax diary, organized files and a reimbursement log.

The “burden of proof” is the taxpayer’s responsibility to the IRS. IRS examiners are not required to help you keep your records. The consequences of not following the IRS tax guidelines are huge to the taxpayer. Possible actions are one-half of one percent a month delinquency penalty during the period that you fail to pay the proper amount taxes, 20% of underpayment attributable to negligence, disregard of the rules, and unreasonable deduction claims. Additionally, 75% of any underpayment attributable to fraud and loss of deductions on interests paid to the IRS, if they were due to a business deduction on your Schedule C.

Pathfinder Business Strategies’ tax record system shifts the burden of proof from the taxpayer back to the IRS. Three separate and distinct tax records are used: permanent files, regular files and a daily tax diary. This applies to all forms of business entities: “S” corporation, “C” corporation, LLC, or a sole proprietorship.

Permanent Files are the prior year’s tax returns, stock purchases and sales, equipment purchases and sales, and similar entries.  Generally, you want to keep any record that relates to more than one tax year in your permanent file including property purchase documents, closing statements, deeds, and other related expenses. Regular files are time sheets, part-time help records, receipts, invoices, canceled checks and other comparable evidence.

A tax diary is the most important of the documentation system. This consists of a permanent record that is separate from the receipts you keep for each item. The tax diary six-column strategy is detailed in the article, Drew Miles on Six-Column Tax Strategy for tracking Business Tax Deductions (Archives, August 2009). Details of expenses are logged into six columns labeled who, what, when, where, how much and mixed deductions. Examples of items for the six-column tax diary are pictures of your office (showing that it is separate from your living area), a printout from your realtor showing comparable cost of office space in your area, meal receipts for business dinners and training expenses, and auto expenses for mileage. Keep your plane tickets, parking and cab receipts (especially if over $75), and the training materials from the promoter to log in travel expenses.

Other elements to tracking expenses are a separate business checkbook with a three-part check and a reimbursement log.  The three-part check method is to send part one, the original of the check to the vendor; staple supporting evidence such as receipts or invoices to part two of the check and file it alphabetically in the vendor file; and to file part three in a numerical file for later reference. A reimbursement log tracks cash outlays and reimbursement expenses by date, description and amount.

Keeping a good documentation system is a worthwhile investment of time and consistency. It justifies business tax deductions, updates and organizes business records and audit proofs your business so that you save money.

Drew Miles is an attorney, author, teacher, and international speaker. He concentrates solely on his commitment to serve his clients and expand Pathfinder Business Strategies’ scope of programs. Visit http://www.pfbs.com for more information.
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™.