December 6th, 2023
In our tax lab meeting today, we discussed the case of a consultant who experienced a significant loss last year but anticipates an income of $225,000 this year, comprising both wages ($152,000) and S corporation income (estimated at $100,000). We explored several tax strategies, including the establishment of a Health Savings Account (HSA). We also considered income shifting by potentially employing her early 20s daughter in the company. Another strategy involved timing: advising the client to pay a specific debt in December rather than January, enabling a deduction for this year. Regarding her pension plan, we discussed the feasibility of implementing a solo 401k and the necessity of a reasonable compensation analysis, suggesting that her salary should be reduced to optimize payroll tax savings. Additionally, we evaluated the home office deduction and concluded the session by determining appropriate fees for this plan using a fee calculator. We also had a wonderful discussion on the Pass Through Entity SALT. We looked at how we reflect the savings when using this strategy. All in all it was a productive and informative session!
December 13th, 2023
In today's tax lab, we focused on a tax plan submitted by Janice Kelley, involving a client who is a business coach in the personal fitness industry. The client's situation is multifaceted: her S Corporation has reported earnings of $290,000, and she's recently welcomed her second baby. As part of her financial strategy, she has opted for contributions in both an HSA and a retirement plan. We discuss the specifics of a home office deduction. A significant consideration for her is the potential employment of her husband within her business, which opens up avenues for additional retirement planning, possibly through a 401(k) to maximize contributions and tax deferral. Another element in her current tax strategy is the use of the Augusta Rule, though it was noted that the amounts claimed might be on the higher side and may require reassessment. With her recent transition into homeownership, her approach is likely to shift, moving from non-itemization to potentially itemizing deductions. We also discussed the opportunity for non-cash charitable deductions. The session concluded with an in-depth discussion on how to effectively present this complex tax plan to the client, starting with a system-generated recommendation for the consulting fees, and then delving into the nuances of the plan's specifics, ensuring a comprehensive and client-tailored approach. We finished up the session with a Q&A segment. It was a great tax lab!
December 20th, 2023
In today's tax lab, we delved into two insightful tax plans, offering both analysis and strategic suggestions.
First, we reviewed a tax plan by Courtney Holness for a married couple with three daughters. This couple runs an S Corp without employees, relying instead on 1099 workers, and they draw salaries from this business. An interesting aspect of their arrangement is the S Corp's rental of warehouse space from a 1065, which the couple owns. We raised concerns about the seemingly high wages the couple pays themselves and recommended a reasonable compensation test to determine more appropriate salaries. Additionally, we explored strategies such as employing their children, qualifying either the husband or wife as a real estate professional, considering a limited flexible spending account, and aligning with their charitable giving goal of donating 10% of their income. Crucial to our analysis was the need for more details on their projected income for 2024 and an understanding of their cash flow.
Our second case was a tax plan from Angeleen Harris, focusing on her client's S Corp in the Coaching and Consulting sector. The primary goal here was to identify opportunities for tax savings moving forward. We debated the merits of amending the 2022 tax return and concluded that it would only be worthwhile if substantial savings were identified, which was not the case. Currently, the client has no significant write-offs, prompting us to examine several options: implementing the Augusta Rule, taking a home office deduction, including medical premiums in payroll, and conducting a reasonable compensation analysis which might justify a higher salary for the client. We also discussed the potential benefits of an HSA and Charitable Deductions.
Both sessions were incredibly productive, offering practical insights and emphasizing the importance of tailored tax strategies for each unique scenario!
December 27th, 2023
No Tax Lab Today