How business owners LLCs can pay less tax! Part 1

THE STORY OF HOW WALLY AND WINNIE WINNER AND LOOIE AND LOUISE LOSER MANAGE THEIR INCOME TAXES

 

By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm  jeff@jbrookswa.com  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

 

In this blog we will tell you the story of Wally and Winnie Winner and Louie and Louise Loser  (not real names) as they go about their financial lives.  The actual clients name is being protected.

 

We are hoping that you learn from their mistakes.   We will look at two situations.

 

Do you remember a 1998 movie called “Sliding Doors” with Gwyneth Paltrow?   The film follows Helen Quilley (Gwyneth Paltrow), a young Englishwoman living in London who has just been fired from her public relations job. The plot splits into two parallel universes, based on the two paths her life could take depending on whether she catches a London Underground train or not.

 

Like “Sliding Doors”, we are going to give you the first and second story plots:  PLOT A will show you what can go wrong. From the mistakes in PLOT A, you will learn what to do right!  In many cases, PLOT B actions are obvious.  In other cases, I will explain what the Winners’ could have done.

 

The Winners happen to be business owners just like too.

 

Once we completed the tax planning and preparation of the returns,  most of the taxes owed had been eliminated!

 The KEY is we will work on reducing Line 37 of page 1 of the tax return called adjusted gross income! Also known as AGI

 

Although the first year will definitely be a learning curve, it is a long term investment that will earn a return on investment (ROI).

 Most CPAs do not want to share the secrets of tax reduction because they want to make more money off of their clients and they do not want spend their spare time, working.

 

I recommend that you get a commitment from your CPA that he or she will train you to take over the easier parts of tax reduction so that your fees will drop each year but you will continue to save more and more income taxes without increasing your IRS audit risk!  I can visualize your bank account growing with more cash!

 

We know that about 90% of the business owners can master the steps by adopting new habits and learning what they need to do to save thousands of dollars of income taxes each year!

 

We know this because we have helped thousands of business owners consistently over that past 30 years learn what they need to know!

 

Over and over again, we see clients who followed our tax strategies see their wealth mushroom so they continue to see their wealth grow!

  

Tax rates including payroll taxes and Obama taxes now can exceed over 50% of your business bottom line profit!!  If you are a successful business owner then you will be subject to two other tax systems in addition to the regular tax systems.

 

Besides the regular tax system, there is the Alternative Minimum Tax and the newer system based on adjusted gross income.

 

Today more than ever we no longer can ignore the importance of having a basic understanding of how to work as a partnership with a local CPA tax professional. 

 

 

If you are married and under $250,000, you are not affected by the new Obama tax). Our goal is to get you below this adjusted gross income amount.

 

Simple and easy steps explained in English will work to save you and your business thousands of dollars in taxes.  What will you do with the tax savings from your CPA tax specialist?  You decide!

 

We work with clients in the most populated states across the country.

 

 

 

 

PLOT A: The Winners are going to be losers in the game of tax savings because they made these mistakes last year.

 

The Winners did not think they needed to do anything to reduce their taxes.  “Reducing taxes is the responsibility of Dave, our CPA. I am too busy running my business”, Wally said 

 

Wally thought that Dave would have the time to manage their income taxes and get them refunds.  The problem is that Dave’s CPA firm main focus was just preparing tax returns. Dave is the normal CPA tax preparer, a historian.

 

Wally, 44 years of age, is a successful restaurateur. He owns two restaurants that are LLCs. They are both  owned 100% by Winn Restaurants Inc., an S Corporation.

 

Winnie, 45 year of age,  is a well thought of dentist who is 100% owner of Happy Smiles Dentistry, PLLC.

 

Winnie also owns 90% of the dental building , Winnie’s Professional Building, LLC. with another dentist who 10% of the building partnership.

 

Winnie used to suffer from extreme anxiety and depression until she found that oils helped her overcome these problems. Winnie tells everyone she meets how these oils have changed her life.  Winnie is thinking about giving up dentistry and building a multi-level business by signing up new representatives.

 

All of their businesses have year ends of December 31.

 

Wally and Winnie have three children including Willie, 21, Winn, 19 and Wilma 16 years of age.  Willie, an introverted be-speckled young man wants to be a CPA some day and loves working with numbers. Willie is working with the bookkeepers for Wally’s and Winnie’s businesses to get the CPA the financial information.

 

Wally hates debt because his mother taught him that debt is a “4 letter word”.  Wally thinks that since his bank accounts only get .3% annual interest, he would be better off to pay off all debt.

 

So when Wally and Winnie started to see cash build up in their bank accounts, the first thing they did was pay off all of their debt.  This resulted in a negative gap between taxable income and cash available to be used to reduce taxable income before the December 31st year end.

 

Month by month during 2014 cash came in and it was spent on debt, a new house, a new remodel of the Winnie’s Professional Building, LLC.  The source of the cash was taxable income while the payoff of debt,  purchase of a new home and the remodel were not tax deductible in the current year!

 

Dave called on December 15th and asked to see the financial statements. By that time, Wally and Winnie were planning their big Christmas party and getting ready for a skiing trip from Christmas Eve to after New Years’.

 

When the new year of 2014 arrived, the financial numbers were permanently fixed and it was too late to make changes to reduce 2014 taxable income.

 

Wally and Winnie went back to work without any idea of the huge tax that they were going to owe for 2014.  On March 1, they received a call from Dave, their CPA asking for financial statements.

 

You see Wally and Winnie were like most of us. They work very hard but do not understand how the tax game is played! For every source of cash that is taxable, there needs to be as many uses of cash that are tax deductible or too much tax is going to be paid after it is too late!

 

Largely unnoticed taxes grew each month during 2014 as sources of cash were taxable while  much of the uses of cash were not used to reduce taxable income!  

 

George Washington died because although he needed a blood transfusion, he was bled to remove the “impurities”.  Instead, George Washington today would have been given a blood transfusion.  Wally and Winnie needed to “cash transfusion” but instead of  using their cash to reduce their taxes through tax deductible, they used much of the cash for uses that were not tax deductible!

 

All of us are motivated to act based on the lessons and habits of our family and friends.  The Winners’ using current year cash from profits to pay off a home mortgage or business loan may make them feel good but it is exactly the worst action that can be taken.

 

The Winners’ are like most of us who are motivated by urgency. Have you ever seen the time use rectangular box that is split into four quadrants?:

 

  1. Urgent but very important
  2. Urgent and unimportant
  3. Not urgent and not important
  4. Not urgent but very importantWith massive amount of information input from email texting and Internet, we get buried in minutia which is time management quadrant 3.

     

     

    The Winners’ spend their time in time management quadrant 2, 1 and 3.  Very little time is spent in quadrant 4.  Managing the Winners’ taxes falls into quadrant  4.

     

    So, everything seems important. We do not think about the importance of prioritizing our time.

     

     

    The most important tax concepts can be learned.  Although like anything new it might seem challenging at first, the Winners’ just like you will be able to grasp the legal tax loopholes will save thousands of dollars in income taxes.

     

    The Winners’ were enjoying a Sunday walking in the mall and they happened to see a book on a shelf called “Simple tax everyone can use”.  The book was over 500 pages of small single spaced type.  Willie, who was planning on becoming a CPA, opened the huge book. Winnie walked over to Willie.  “Willie, now you know why we don’t get involved in taxes, we depend totally on Dave, our CPA. Taxes are just too complicated”, said Winnie.

     

    What didn’t Winnie understand?  The fact is you and the Winners’ do not need to master 99% of the information in these books because your  CPA tax professional should have invested thousands of hours in learning the other 99% of the tax details.  Many of the tax concepts will never be relevant to you or the Winners’.

     

    PLOT A: By the time that the Winners’ tax returns were filed by Dave,  it was too late. The Winners’ owed $238,285 in federal tax plus $27,566 in state tax. In addition,

     

    The Winners’ handed me parts of the tax returns that were prepared by Dave.

     

Although the first year will definitely be a learning curve, it is a long term investment that will earn a return on investment (ROI).

 

Most CPAs do not want to share the secrets of tax reduction because they want to make more money off of their clients and they do not want spend their spare time, working.

 

I recommend that you get a commitment from your CPA that he or she will train you to take over the easier parts of tax reduction so that your fees will drop each year but you will continue to save more and more income taxes without increasing your IRS audit risk!  I can visualize your bank account growing with more cash!

 

We know that about 90% of the business owners can master the steps by adopting new habits and learning what they need to do to save thousands of dollars of income taxes each year!

 

We know this because we have helped thousands of business owners consistently over that past 30 years learn what they need to know!

 

Over and over again, we see clients who followed our tax strategies see their wealth mushroom so they continue to see their wealth grow!

 

 

Tax rates including payroll taxes and Obama taxes now can exceed over 50% of your business bottom line profit!!  If you are a successful business owner then you will be subject to two other tax systems in addition to the regular tax systems.

 

Besides the regular tax system, there is the Alternative Minimum Tax and the newer system based on adjusted gross income.

 

Today more than ever we no longer can ignore the importance of having a basic understanding of how to work as a partnership with a local CPA tax professional. 

 

 

amount.

 

Simple and easy steps explained in English will work to save you and your business thousands of dollars in taxes.  What will you do with the tax savings from your CPA tax specialist?  You decide!

 

By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm  jeff@jbrookswa.com  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com