Making Changes to Your Tax Firm: A Summer Reflection

On this episode, Roger and Annie discuss making changes to tax firms during the summer season, emphasizing the need to reflect on the current business to create a better work-life balance. They talk about examining price structure and client list, addressing estimated taxes, and offering advisory meetings to increase revenues. They also emphasize the need for tax practitioners to be proactive in addressing changes in their business.

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Chapters

• (00:00) - Welcome to Federal Tax Updates : What Annie and Roger have been up to this summer
• (12:40) - Where to start changing your firm
• (20:54) - Some more proactive steps
• (28:26) - Tax advice for new business owners
• (43:38) - What can you do now to help yourself during next tax season?
• (48:50) - Changing the way you bill your clients
• (53:08) - Wrap up and please subscribe so you don't miss new episodes

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All content from this podcast by SmallBizPros, Inc. DBA PADGETT BUSINESS SERVICES is intended for informational purposes only.

Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

Please Note: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Roger: Hello, everybody. I hope you're having a wonderful summer. This is Roger Harris and Andy Schwab with the Federal Tax Updates podcast. And we're going to talk about how you can spend time in the summer other than laying at the beach or going to the mountains or whatever. So, Andy, how are you doing today?

Annie: I'm doing great. I am enjoying my summer. I'm in Texas. So it's hot. It's really hot. We've been spending a lot of time at the pool. I'm not going to lie, but summertime is always kind of nice to kind of think about things when you're not, you know, trying to crank out tax returns and and take a take a good look at your practice and and.

Roger: Yeah, there's a lot of things you can I mean we used to think well we used to think we used to act as if tax season ended on April 15th and then it kicked up about 30 days before the extension deadline. But now you hear all the time the tax season never ends, but it definitely slows in the summer. I mean, it does.

Annie: It does. And it's a good time for for projects or just taking a step back and looking at, you know, your practice, your employees, your what you've got, is it where you want it to be? You know, like I think we've said on a previous podcast, it used to be a badge of honor to to work 80 hours a week during tax season. And I'm not sure too many people want to do that anymore.

Roger: Well, I mean, if you enjoyed working 80 hours a week in March and April, there's nothing keeping you from doing it now, but you don't. So. Right. You know, there's there's definitely changes that are made. And I think what you're talking about is, you know, one of the kind of lingering after effects of the pandemic is, you know, all of a sudden we all had to go home and then we had to learn how to work remote or our clients or taxpayers had to learn how to work in a remote environment. Our employees got accustomed to it. Our clients got accustomed to it. And the thought that we're going to go back to what you just said, everybody's going to come back into a building and we're going to work 80 hours a week. You can try that. But first of all, your family probably never really liked it in the first place, so they're not going to be thrilled with it. I can promise you your employees aren't going to like it, so.

Annie: Be hard to hire.

Roger: If you may not even be able to hire them. Right. And I'm not sure our clients necessarily want to go back. But yeah, we're all afraid to make the changes because we're afraid it'll have a negative impact on our business when what we're learning and these aren't theories, these are real world case studies is we can actually work less and do more if we work smarter and differently.

Annie: Mhm. We actually can serve our clients better.

Roger: Right. You know, we can't, we can't go through a podcast without mentioning the shark, but I'm not going to mention it other than as an example that one thing we heard when and you could say the same thing for PGP when it came out but those things came out in the middle of a tax season. And the most common thing that I heard, and I'm sure you heard the same thing, I don't have time for that. So so we had small business clients who needed benefits that were put out there by the government in in real time to get through a pandemic. And too many of us responded to that by saying, I don't have time. Well. Ask yourself, were your clients in need of their tax return or a PCP loan? Were your clients more in need of their tax return getting done or getting the employee retention credit if they were eligible? So for people who say if you if you believe what we say, that we're just telling you to work less, we're just saying serve your clients worse. I believe we're actually saying no, we want you to serve them better by never using the excuse. I don't have time to do what's important to you. I only have time to do what's important to me.

Annie: We I remember sitting on on webinars with our franchise owners saying stop preparing tax returns. Take a deep breath. The returns will be there. But right now it is Pptp and IRC and being an advisor to your clients, getting them through the pandemic, helping them keep their doors open, helping them, you know, process all the changes is it's scary, you know, it's very scary for a lot of business owners and that was the role that we needed to play and that was the role we needed to be. So that's what we did.

Roger: And it and it had a profound effect. We've heard and I know you've heard it because you've talked to as many, if not more franchisees than I do. It was a profound effect on our small business customers when their accountant in the middle of tax season picked up the phone and called them and said, Hey, I know it's tax season, I know you want me to do your taxes. And we were also blessed. We got an extension that first year till July. Of course, we had some time because we hadn't changed our business model yet. But I'm here to get you through this by helping you get access to this these loans to get you the employee retention credit. We made clients for life by being able to react to their needs and again, doing what's important to them and not to us because our comfort zone is doing their tax return right.

Annie: Or producing the product, sending it out, getting paid.

Roger: So one of the so we're having this story to say. One of the things that I think all of us in this industry should do as we're in the summer while we have some time, is reflect on your current business, the hours you work, the way you serve customers, how you price everything about your business, and look back and say, what do I need to change? What can I do better? What can I do differently to create a better work life balance for me, my staff and serve my customers better? Because you just came out of the probably the worst time of the year while things are fresh, look back on. What would I do differently going into next tax season? And again, it doesn't mean you have to make less money. It doesn't mean you have to serve clients less, but it does mean you have to change. And you need to start the evaluation process, but you need to talk to your employees because they're going to know some things that maybe you don't know that need to be done differently. And I'm going to tell you, go talk to your family, too, because I when I've had this discussion with people and the spouse was around, it was a completely different discussion because the the spouse sees the stress that we're under. Sometimes they they recognize more than we do what they're missing by not having their husband or wife around as the kids are doing certain things or as other things come up and ask them what they would want to be see you do differently. It's a good time to to look at your business without the pressure of the tax season and not be afraid to make changes.

Annie: Yeah, look at pricing. Look at your client list, look at technology. Where's the balance? You know, look at your client list. I bet everybody has five clients. They could rattle off the top of their head that they'd be better off without. Right. But they're too scared to pull the trigger.

Roger: You I guarantee you, you have clients that you can charge more for what you're doing and you have clients you need to get rid of. So the net sum of those two activities is probably if you do it right, it won't be probably it will be that you will have as much or more revenue with fewer clients and freed up time. And I don't see anything wrong.

Annie: So when when.

Roger: Yeah. But you have to be willing to do both things demand that your worst clients either change or go somewhere else and demand that your better clients pay you what you're worth and.

Annie: Stick to it. And when you make a plan, you got to stick to it. I mean.

Roger: If you look at what prices have done over the last well, certainly the last couple of years, but the last ten years, we probably haven't kept kept pace with that. And the other thing we're probably doing is we're dishing out a lot of free advice that we should be paid for, that if they went somewhere else to get that advice, they would pay a premium for it and we just give it out for nothing. Because we do it casually or something like that. There's a lot of being written now about how to structure tax advice in ways to get compensated for it as opposed to just giving it away for free. So anyway, I think that's probably the best place to start other than just sitting down with yourself and analyzing what needs to change. But the first place is look at your price structure and look at your client list. There's dramatic improvements that can be made just in those two areas.

Annie: You're probably losing your shirt on some. Some will probably pay you double. Yeah, some you might want to get rid of.

Roger: And this is where your staff can be really helpful because they may be, from your perspective, profitable clients because you're not the one that's being. Demanded to spend all the extra time. So but your hope because again, freeing up staff time creates their ability to do more profitable and valuable things, freeing up your time. But don't let the summer go by. We're going to talk and we're going to get off of this in a minute. We're going to go through a lot of the technical stuff that I know. Everybody's more in their wheelhouse that needs to be done during the summer, but this is probably going to be more important than than some changes you make to tax planning or how to calculate estimated tax payments or whatever else we're going to talk about. But you should go through this exercise every year and I'm going to say the summer is a good time to do it while tax season is still fresh on your mind. And I know at Paget and and there's no visible thing here, but we're doing a series of webinars on this very topic. We have what we call the Paget puzzle that addresses where you begin the process and all the pieces and the order in which they change. And and I'm going to read these dates. I don't know if there's a way any for us to make them available any other way, but you can get one hour of CPE if you attend these webinars through CPA Academy.

Roger: But depending on I'm going to give you three dates and depending on when you listen to this webinar, we'll have a lot to do with whether or not these are still available. But June 22nd at 10 a.m. Central, 11 a.m. Eastern, Thursday the 29th, 2 p.m. Central, 3 p.m. Eastern, and Tuesday, July the 13th, 12:00 Central, 1:00 Eastern. You can attend those webinars and get one hour of CPE and we'll talk more detail about this. You'll hear what we're telling our offices about how to to make this transition from from a firm that you're killing yourself in. Because at the end of the day, if you don't make these changes, you're going to have a hard time hiring. And you already mentioned that, but you're also going to have a harder time selling. Mhm. Because the younger generation is not going to step into a firm that's old school in the way they do things. Working long hours. And if they buy it, they're going to pay you a discounted price for it because they're going to have to make all the changes that you chose not to make. So you're better off to make them yourself and get paid for it.

Annie: Roger, what's the name of it? Is it becoming your firm's CEO or becoming.

Roger: Your firm's CEO so that you come in and because somebody because I know how I've been down this road during tax season, when we walk in that office, all we're thinking about is the returns that are on my desk and the appointments I have for that day. Nobody comes to that office during tax season wondering about are we pricing right or are we using the right technology? Do I have the right staff? Am I servicing the right clients? But that's what the CEO has to do. You'll hear Jeff Phillips, our CEO, make a reference that that I thought was a great way to look at it. Delta has a CEO, but he doesn't fly the planes. We're flying all the planes and we need to step back and be the CEO of our company. That doesn't mean you can't do tax returns. I know that we spent a lot of time learning how to do taxes and and we don't want to completely get away from it. At least that's what we think. But you've got to allow time to run the airline. Because if all you're doing is flying the planes, nobody's running the airline. So tune in to one of those webinars again. If nothing else, you'll get an hour of CPE.

Annie: And it's free.

Roger: It's free. It doesn't cost you a thing. And we'll go into more detail. But that's the first advice we want to give people for what to do this summer is do something for yourself. Everything else we're going to talk about is for your clients. That's right. This is for you. Make your firm better for you, your employees and your clients, and now's the time to do it. All right. I'm off my summer, my soapbox. What else?

Annie: All right, Roger. So some of the obvious here, some of the reactive things that you could be doing or should be doing this summer, I mean, the obvious one is getting all those clients who are on extension to bring in their information, complete the returns, get paid and move on and don't wait on them.

Roger: Push them.

Annie: Yeah, push them. Give them a deadline. You know, I need it by X or it's, you know, an extra 50 bucks or whatever. We've talked oh, so many podcasts, so many podcasts about the IRC. And so if you are unfamiliar with the IRC, please look at some of our previous podcasts. But the IRC presents some some opportunities to either still file to get the claim for those clients. You know it's not over. You can still file and get and get those claims as well as amend the returns for the associated years that the credit was calculated. So know there's some an opportunity there to talk to your clients to address and now the IRC notices are going out. So don't be shocked if a client who has received the IRC gets an audit for that. So that obviously offers some opportunities for summertime work. A lot of times we have a new client come in with back taxes. Maybe you extended them because they had 3 or 4 years to do. Take this time this summer, knock those returns out, get them filed, and then obviously, you know, simple things like address notices that have come in, the IRS is back issuing collection notices. I believe it's the CP 14, CP 14, I believe. So those are coming out. So you may get a couple of clients raise their hand and say, you know, this was put on hold during Covid, but now it's reappeared. And unfortunately it could have been from a year ago, two years ago, three years ago even. So, it might take some time to go back, see if it actually was addressed, if there's an envelope, perhaps sitting at the IRS that they haven't had a chance to open yet to address that notice. But those are all sort of reactive summertime to dos, right?

Roger: The amended returns. You know, you're going to get a rush at the end of either September or October, whatever the deadline is. So try to be proactive and addressing that. And, you know, certainly if it was your. Issues with the extension, meaning you've got everything. You just couldn't get them done by April 15th. Then go ahead and knock those out. I know you want to go on vacation and take some time off, but go ahead and knock them out. Before you get that last minute rush that you know is coming.

Annie: Some other proactive things Roger mentioned earlier, estimated taxes. As you know, taxes are pay as you go, right? So that means when you earn the money, you're supposed to pay in on the money similar to like a W-2 kind of thing. And and there's two ways to do that. You have withholdings from pensions, W-2s, Social Security, or you make what's called quarterly estimated tax payments. So if you had clients come in for tax preparation and you realize perhaps they weren't making estimates at all or making the wrong amount, or there could be something that's changing in their family and their job life, you might want to consider quarterly meetings to run estimates with the clients calculate estimated tax payments, so props are a good example of soul props. S corpse. Somebody with a lot of rentals or large investments. Be proactive and talk to them about the consequences. Now get them on quarterly both for Fed and state if need be. It's a it's a way to reach out and connect once again, not just do their tax return in March or April and then not see them for another year. Be proactive and communicate with them throughout the summer. I think they'll really, really appreciate it.

Roger: And this is one of the places where you can start getting paid for some of the advice that you're probably giving away. There's there can be huge value in scheduling meetings with your clients to make sure when you did the estimated tax, let's say when you did their return in early March, things change. And we're going to talk about some particular events as we go through this. But things change and opportunities to pay the taxes either through salary so it goes back in evenly, spreads it over the year versus an estimated tax payment. It's also a way to charge for these meetings, you know, offer it as an advisory meeting, a tax planning meeting you're giving out. Think about some of the penalties you can save or some of the opportunities that you may discover in these meetings that make the clients value you more and willing to pay you more. And those that don't, maybe they need to go somewhere else. Going back to our earlier discussion, but we look at estimated taxes and there's some huge opportunities to to increase our revenues, better serve our clients and quite honestly, save us some headaches in the filing season down the road. They don't have to write those big checks and wonder why. So we tend to look at all this stuff, unfortunately, as just a technical discussion point. But it's a huge way to change the way our firm operates in the way we're viewed.

Annie: Yeah, and there's there's penalties associated with underpayment of these quarterly estimates. And something that I feel gets overlooked sometimes is when you, let's say you're behind on one of your installments, you can still avoid the penalty by increasing your withholding, your salary withholding because salary withholdings are treated as being paid in four equal installments. So that's an opportunity. If someone has fallen behind on their estimates, perhaps they can adjust their withholding to cover that period.

Roger: So that's the extreme case that you can even do. You can get to December and realize that you are way behind in your estimated taxes and make a big withholding from your paycheck in December. And it's going to be applied equally throughout the year, even though the money didn't. But you but if you make an estimated extra estimated tax payment in December, you don't get that treatment. So you can even catch up a little at the extreme at the end of the year and potentially save somebody a lot of money.

Annie: I have seen someone take a bonus through payroll and put the entire amount as withholding.

Roger: Just to get out of a.

Annie: Significant penalty. Just to get out of it. Yep.

Roger: Now, what's that advice worth? You know, that's.

Annie: Not free, I can tell you that.

Roger: But we make it free too often, you know.

Annie: Because I know.

Roger: To us it's like, Oh, yeah, I knew that, you know, But think about it. To a client that first of all, if it was a good client of yours, hopefully you didn't get to December and it happened to you. But but these are again, opportunities to take the knowledge that we have and apply it in a way that our clients love us and they're paying us for it. But sometimes we just.

Annie: It can be confusing.

Roger: Yeah, it definitely can be confusing. But that's a great that's a great idea. And again, it can work all the way up to December.

Annie: And by confusing they call them quarterly tax estimates, yet they're not due quarterly. Of course not. You've got January through March which is due. April 18th and you've got April and May, which is due June 15th, and you've got June, July and August, and that's due September and then September through the end of the year. Year due the next January 15th. So for clients that's that's a lot of dates and periods that are covered. Plus you've got the extension of the tax return. So the best way to do, like I said, is to just be in touch with them, be tapped into what's going on in their lives so that you can get them lined up before December where you're scrambling to try to make things make things work. So although I did hear. Did you hear this, Roger that. There's a proposal to make it every three months.

Roger: Yeah, I've seen that a couple of times where they're trying to make it work now, you know, that, you know, kind of put it really on the quarter to quarter deadline. There's some reasons it's not that way. And, you know, I think most people just don't change confuses people.

Annie: Maybe so maybe it's better just.

Roger: To leave.

Annie: It the way it.

Roger: Is. Yeah. But I mean, you know, if they got those that pay it, know when it's due, but, you know, those that don't would make more sense to just nail it every 90 days. Yeah. But then you got. Okay so now it's due March 31st. I haven't done my taxes yet. Oh. Well it's due December 31st. I don't know. You know, there's an excuse and a reason for everything. For everything. But that's why they pay us to manage those. Those dates and those things. And whether it's due by the quarter or on the crazy schedule, we have now set your systems up to accommodate it and take advantage of of offering valuable advice to, you know, another one that is somewhat mitigated now that we have a 10,000 salt cap. But a lot of times your state final state installment is not due till January, but you should pay it in December. So you get it double up in the current year. Well, but. Or you shouldn't if you've already reached the $10,000. 10,000. So little things like that that, you know, advise them against paying it early, you know, they may say, well, I just want to get that checks and get it over with in December. Well, if you do, you don't get the deduction. If you wait till January. And, you know, there's just all kinds of things that, you know, opportunity gets worse.

Annie: Roger. It gets worse. Yeah. The 10,000 salt cap is set to expire. Well, yeah, so.

Roger: That expire and it won't matter. And what happens when it expires in December for the next year? Who knows.

Annie: But I know. Or retroactive treatment and and.

Roger: Some states have come up with workarounds that some work some don't work.

Annie: No, but some yeah some are easier.

Roger: But something that should be as simple as paying your estimated taxes. Now, the other thing that you have to and we're going to talk a little bit more about start up businesses. But if someone has been an employee for 25 years and then they go off and start a business, they have no idea how to pay their taxes because they've always just had it withheld from from their paycheck. I mean, there's a whole advisory opportunity in just educating a new business to the issues regarding payroll. Who can be an employee, who's not an employee, how to pay their taxes? Because if you're a sole proprietor, how.

Annie: To file their they.

Roger: Don't know anything about estimating. I've never heard of estimated taxes. They never even knew they existed. Tax Yeah So opportunities for for again modernizing your firm into an advisory firm by just taking advantage of the stuff that's out there and estimated taxes as simple as it seems has a lot of opportunities.

Annie: It does. And speaking of, you know, payroll issues, we've got the whole issue of reasonable salaries. So I'm sure that term has come up. But the IRS requires, for example, a shareholder to be paid a reasonable compensation for their services. So there's like if you think about it logically, there's an incentive for a shareholder to be paid less, less money or no money at all actually. But because FICA and Futa are paid on the wages and ordinary income that passes through, that's corp is not subject to tax. So there's an incentive to pay less than reasonable or not to pay anything at all. But the IRS is aware of this, obviously, and so the IRS can come in and audit and reclassify distributions and treat them as salary and post penalties. And wages can only be deductible if they are considered reasonable. So you may lose the deduction if you don't have a reasonable salary. So this is another conversation that you have with your client. If you think that they're not taking a reasonable salary or you see these really large distributions, talk to them about, you know, hey, what do you think a reasonable salary based on your job title or your position or the size of your company or the complexity of the business or, you know, comparable salaries in the industry? Do you think you're taking a reasonable salary and have that discussion?

Roger: And this is. An area of the IRS has said for years is a point of emphasis. If you look at the S Corp return, it asks for the owner's salary and then it asks for distributions. And theoretically, they can look at those two numbers and see who's who's pushing the limit or pushing the envelope here. Now, due to lack of resources, we haven't seen as much enforcement in that area as we may see going forward because it has been an area where in the S Corp world, because of the savings that you've mentioned in terms of self-employment tax, Social Security, Medicare, that we may see a much more enforcement in that area coming soon. So it's an area that you should should talk to people, and I think you owe them another discussion. It's amazing when people get 60 and they go look and see how much Social Security they're going to earn and it's like $300 a month. And they get all frustrated and angry and it's because they they played this game all through their career and paid themselves no salary. So you need to remind people that, you know, if that there's a cost at the end of the day to not having Social Security wages and when you get ready to draw your Social Security. You're going to be paid based on what your Social Security wages have been during your career.

Roger: And if you choose to push the limit to the low end, you better be putting money into an IRA or a 401 K or something because you're not going to get much Social Security. It's not just based on how old you are, it's based on how old you are and how much you've paid into the system. And you can argue it's not a great retirement plan. We wouldn't buy it if it was selling being sold to us. But trust me, as someone who's drawing it, when you get eligible by God, you want it and you want as much as you can get because you've paid into it. But a lot of people don't realize that this could come back to haunt them later in their life if they haven't made other arrangements. When they play this game, they take two risks. They take the risk that they'll be determined to have not paid enough and the IRS is going to come in and change it. And they'll also take the chance that they will not have the benefits that they think they're going to have when they go into retirement age. And if that's all you're counting on, you want as much as they can pay you, you can and you may not be getting it.

Annie: Good point. Good point. And I will mention this idea of reasonable salary also applies to partners. I know partners don't take a salary. They take what's called guaranteed payments. But the same idea applies. So this is a discussion you can have with your clients that are partners.

Roger: And this whole discussion took in and we'll we've mentioned it in other podcasts, we'll Talk back earlier, this whole idea of the 199 a deduction and salaries and wages, this whole thing plays into that calculation as well. So it's a it's a bigger discussion point than probably we think it is. And it's, again, supposedly a point of emphasis with the IRS. So here again, another opportunity to market yourself and your expertise in exchange for getting paid as opposed to just you can give a high level, but if you want somebody to get in and talk about their own particular situation, get paid for that.

Annie: Yeah.

Annie: That's a good point. All right. Kind of switching gears a little bit. There are also what we call maybe life changes that happen during the year. So just a reminder, if you you are what you are at the end of the year. I feel like I say that every tax season. So if you got married on December 31st, which I actually did, if you got married on December 31st, I'm sure it was just for tax reasons. I don't know. I'm a CPA and so is my husband. So we were we were probably trying to work the system. So you are where you are at the end of the year. So we were married for one day or if that for the year and we filed we were considered married for the entire year. Okay. So if you have a child that's being born, you don't get a portion of the year, any of the credits you're considered to be qualified for the entire year for that child. Same thing with if you're no longer a dependent, you're no longer a dependent for the whole year. So those are some of the things that you know, and it's same for divorce. If you're divorced at 1231, you're considered you're single for the whole year. Yeah. And then there are some other things like death of a spouse or perhaps, you know, your final year tax return. Your spouse is deceased, and now it's just you.

Annie: And now you have your final tax return. How do you when does it do? What gets on that return versus what gets on maybe an estate return? What does a final return even need to be filed? I mean, those are kinds of conversations that you would want to have. Those are opportunities there. There's other things, you know, moving jobs, changing states. You know, if you if you have someone who's a high salaried person having multiple W-2s, they're probably maxing out some of their benefits, their state implications of, you know, part year residents, full year residents, those kinds of things change in job. What else? Basically, if you if you're thinking you may be sitting there saying, okay, I agree. I agree. Those are things that could happen to my clients during the year. But the real question is, how are you going to know about it? How do you know that your client, A, B, C over here, you know, switched jobs, started a business, had another kid moved out of state. I mean, you've got to have some system in your practice that allows you to become aware of this. Is it a survey? Is it quarterly meetings? Is it what is it that you're doing? Are you picking up the phone and calling them? Do you have time for that? Again, that goes back to kind of your scenario. Are you being the CEO or are you being the tax preparer?

Roger: Well, because we typically find out about these things when we prepare their tax returns.

Annie: Which is too late to do anything about.

Roger: About it.

Annie: Because you're in.

Roger: Yeah. I mean, we become kind of glorified. Calculators at that point because we can't do anything because a big one we see and it could go back to our earlier estimated tax discussion. You you sell a piece of property for a lot of money that you've had for 20 years and you get your tax return. So, oh, by the way, here's this. I sold this land for $2 million. And it's like, what, you know, what is your to Annie's point, what is your business system that allows you to be involved in that when you can do something about it? Because when they sold that $2 million piece of land, you should have looked at their estimated tax payments to see if they needed to be changed. You should have prepared them to put aside enough money to pay the tax before they go out and blow it on. You know, new cars, new houses, vacations, whatever the case may be. So how does your business operate where that kind of information and everything else you mentioned is made available to you when you can be of most value to the client? Because figuring it out when they do their taxes is one thing and go, Yeah, I know how to report that sale, but I could have done something different.

Roger: Maybe I could have. If you come soon enough, maybe we could have done a like, kind exchange. Maybe we could have escalated in an opportunity zone. You know? Who knows? You might also save yourself a lot of time during tax season because they tell you, Yeah, I sold it for $2 million and it was gifted to me from my grandparents. Well, what's your basis? I don't know. Oh, well, let's go deal with that problem back when it's now happening and not be faced with it during tax season. And when you're too stressed or even if they inherited it and you know, there's a stepped up basis on date of death, well, at least you got time to say go back to this date and get some values. So you deal with those problems in advance so you don't deal with them at your most busy time of the year. Again, CEO does those sorts of things. His tax preparer just deals with the issue when the return comes up and accepts the. Challenges that presents.

Annie: There's a there's a lot of conversation. Just having a conversation with a client can reveal so much that the next thing I was about to bring up is like initial year considerations. You know, I've heard this before, you know, the client is like, Oh, I started a business and we just lost so much money. I didn't make any of my estimated tax payments because I just had this huge loss. And then you say, Oh, really? So. So when did your business start? Oh, we put all this money into it. But guess what? It wasn't even started that year. Let's say it wasn't open for business. They just think they're going to deduct all those expenses or they go on and on and on about all this money and it turns out to be a hobby. Right. And they just think, oh, I've got all these losses. So, you know, if you have a client that you have you talked to and they're thinking about starting a business, you know, talk to them. What is a short year return? How are you going to be set up? Are you going to be an LLC, sold, an S-Corp, a partnership, you know, do you perhaps you have a comparison entity comparison worksheet. You can sit down with them, walk through the pros and cons of each type, talk to them about what does it mean when your business starts. Just because you start spending money does not mean that your business is in business.

Annie: So until here's an example you renovate an entire rental property, your business. You're not in business of renting until the home is up for rent and can be rented. So, I mean, a lot of people spend time getting ready. It's called start up costs, those types of things. So you really need to have that conversation and more importantly, save yourself a headache. If someone like Roger said, if they've been a W-2 person for 25 years and they'd go start a business, believe me, they are not aware of the proper business accounting, how to keep their records, setting up bank accounts, co-mingling money. What is a capital contribution? What is a loan? You know, all of these things you talking basis with them? Are you talking salary with them? What about hiring? Are they employees or independent contractors? I mean, there's so much discussion there for someone who is just entering what their calling is. Oh, I just started a business. So that's a that's a really, really big area that you can save yourself a headache. You can be a great advisor to the client, help them walk through some of those steps, you know, get an iron. Do you need an iron? You know, are you going to run payroll? How do you set up payroll? What entity? Those kinds of I mean.

Roger: Do I need.

Annie: To entity.

Roger: Structure LLC or an S-Corp or. Well, an S-Corp can be an LLC, but you know what I mean. There's yeah, these are all things that make clients pay you more so you can get rid of the ones who don't want to pay you more because they don't value this type of interaction and advice. It goes back to our earlier thing. This is why you can work less and be better because you only take clients who want this because we've all done this. They walk in. See, I started a business. What about payroll? Oh, I'll pay myself $1,000 a week. How do you do that? I just write myself a check.

Annie: Well, right.

Roger: You can't do that.

Annie: You know? Right.

Roger: Right. You know, you're Inc.. You can't just write yourself $1,000 check, and now you're in March. You've got a whole nine months of $1,000 a week checks being written, and it's all dumped on you. And oh, by the way, yeah, I formed a corporation and the tax returns do in a week, you know.

Annie: It's like, yeah, it is.

Roger: In the middle of tax season.

Annie: Ocean.

Annie: And on the flip side to. Oh, I saw that. Oh, what happened to your business? Oh, I sold that. When did you sell it? Oh. March. April, May, June. Well, guess what? That tax return is due to 15 days of three months and 15 days. Regardless, it doesn't wait until December 31st. You shut down your business in June. Guess what? Three months, 15 days. There's your tax return. Do you know? Are you people sell their did you sell the assets of your business? Did you sell your interest in the business? Did you just close your doors down? Did you file dissolution papers? Did you like what happened to all the assets? Where did they go? I mean, all of these things.

Annie: And, you know, have a discussion with those.

Roger: During tax season.

Annie: Right?

Roger: You want to be reporting the transaction during tax season but not dealing with all the challenges. And again, it's why we need to look at the way we do business and get clients where this type of relationship, this ongoing relation ship with them benefits them clearly. But look how it benefits us. This is valuable. They don't know this stuff. I mean, and instead of having to tell them, well, you got owe all this tax and all these penalties and all this interest because you didn't do anything about it until I did the tax return. You might have enough in penalties and interest to pay you some nice fees during the year. So look at the way you interact with your clients during the year. So these types of things aren't found out at the worst time of year when you're the busiest and you're having to scramble to meet a deadline when it happened in June.

Annie: Exactly.

Annie: It's true. And another one I just I just thought of there must have been 8 or 10 federal disaster extensions awarded. Generally, federal disasters come with casualty losses. Casualty losses are not straightforward by any means. So if you were in one of those states or you have clients in those states, I mean, I feel like there were some that were May, June, July. I mean, there was just one every couple of weeks. I felt like we were adding another state for another disaster or another extended deadline. And a lot of times that takes going back and doing, finding paperwork, finding, recreating something if you have to, in order to calculate that casualty loss. So that's something, you know, another thing that you can do, not in the heat of tax season, but prior to it. Right. Because casualty, the calculation of casualty loss is a lot different than what people think. Oh, I lost my entire house. I lost everything. I'm going to have this huge loss.

Annie: This huge well and another big one, not always the case.

Roger: Cast on this. You know, going back to your initial year, if someone formed an entity starting at January, we've got that whole beneficial ownership interest requirement that has a 30 day clock ticking. Yeah. And if they come to you at the end of the year, they formed a business, let's say they formed an LLC registered with their state in April the 1st, and they come to you next April the 1st. They've they've maxed out the $10,000 penalty.

Annie: So I know.

Roger: There's a huge difference now in those initial years with this whole beneficial ownership starting in January, if you don't know what we're talking about, go back. We did a podcast, we covered it. The good news is it doesn't start till January of 2025, so you got plenty of time to go find the podcast and listen to it. But it's just one more step that if you're talking to business owners that form a business that says you can't wait till tax season to deal with it.

Annie: I mean, you can't there's a lot on the horizon.

Roger: Cost you some money.

Annie: Yeah, but this is why it's so important to be talking to your clients during the summer. Send out a survey. Ask them how you can help, whether they want to learn more about. Because Roger, with the elections coming up next, I mean, policy could change things. Things are set to expire. Maybe they won't. Maybe they will. But talking to your clients as something comes through or there's there's, you know, talk of tax reform through the politicians and knowing what to talk to your clients about and the implications. Oh, this person could really be hit hard on, you know, 190 deduction going away or something. I mean, you just don't know what can come out of the conversation.

Roger: And one of the. Yeah. And one of the biggest criticisms that we hear from clients is that my tax preparer just prepares my taxes. I never get any advice. They never tell me anything if I don't ask. Well, that's an open door to, first of all, change the way you do business. And secondly, have them pay for what they're telling you they want. Because if you're just attack, I guess. Each of us needs to decide are we a tax preparer or a tax professional? Because a tax preparer just prepares, you know, just bring me numbers. I'll put them on the right line on the form when we're done. Here's the final result. A tax.

Annie: Professional.

Roger: Understands that there's a lot that goes into doing that tax return and a lot that happened during the 12 months where I could have potentially made it better for you. Maybe there's not this year. Maybe everything's so straightforward that it's just, you know, it's just a calculation. But I think probably we view ourselves as tax professionals, but we act as tax preparers, and that means we don't get paid what we're worth. And we put all of our efforts into a short period of time and we work 80 hours a week. Our family never sees us. Our employees are mad, our clients aren't happy, and yet we don't change.

Annie: Change is hard.

Annie: Change is scary. But.

Annie: But. Yeah, but it's not.

Roger: It's not all bad.

Annie: It's not.

Annie: Impossible.

Roger: No, it's really. And we are really valuable to people if we engage them properly. We've learned so much stuff in our careers that's just second nature to us. That to the right person is an invaluable piece of advice and we need to make that available to somebody. But act like a lawyer. And here's what I mean by that. You don't get nothing out of a lawyer for free. They will never answer your questions for free if you come to their office. It could be the simplest question. It could be a question they've answered a thousand times. But you're going to get a bill. But you walk into a tax preparers office, they'll tell you everything they know from the time they got in business for free just to be able to pat themselves on the back and say, see how smart I am? Well, we need to act more like lawyers when it comes to billing. And I don't mean that we don't have to take it to the extreme, but it go to a doctor. Walk into a doctor's office and try to get free advice. It's just I don't know why we think we have to give it, but we do. But we have some valuable information. Surveys have said, particularly in the small business market, that the most trusted adviser of small businesses is their accountant slash tax preparer. Well, that's good, but it could be better.

Annie: Yeah.

Roger: What else do we got to talk about? We just. I'm just kind of.

Annie: That's all I've got today, Roger.

Roger: I'm sorry you're having to listen. You know, you're so used to hearing this from me, too, that you're probably sick of it, but.

Annie: No, no, I think this was good. It was a lot of good information. It's given people a lot of things to think about. And maybe maybe they act on 1 or 2 of them, you know, during the summer and focus on some other stuff. But it's it's a good time to just take a deep breath, step back, look at your operations, look at where you are, where you want to go, talk to your employees, talk to your clients and and take a vacation.

Annie: Go to the beach, take a vacation. And also, you deserve it.

Roger: Technology can help because I know in our offices we use ultra tax. I don't know. Not every software is the same, but there's a feature in ultra tax called data mining, where if something comes up out of nowhere or this month, you want to talk about estimated taxes or whatever, we can go into our software and find all the names of the clients that this particular provision talks about. And draft some communication or a policy or procedure. So there's technologies out there. You know, we use Checkpoint Edge, it's a research product and has client letters so we can marry the client letters in one product through data mining, in another piece of technology and have our technology do a lot of this for us. So yeah, again, that's what the CEO does is they go look at the tools and the technologies and the clients and they marry up the advice that they need for the money that they need and.

Annie: You make more money.

Annie: Monthly newsletters are fantastic to be sending to your clients. Send them and tell them what's going on. Keep them in the know. You know, call me if you want to discuss this, if this relates to you. I mean, all of those kinds of things are really beneficial. And if you have the right technology, it's not a lot of work.

Annie: No.

Roger: That's why technology is sometimes not considered as we look to make these changes to our firm, we don't realize some of the tools that are out there that we can utilize that doesn't require another person. It doesn't require more of our time. It's just we kind of set the vision and then we bring in the technology and let it work within our staff. I know we again, these are all things that that help you make more money and work less hours or make more money and work more hours or whatever you want to do, you know, but don't work 80 hours for the same money, somebody else's work getting for working 40 hours. So if you want to make $10 Million and work 80 hours, God bless you. But if you want to work 40 hours a week and still make a really good living, you can do that too.

Annie: What else?

Annie: We got back with some more podcasts. That's it. That's all I've got for today.

Annie: That's all we.

Roger: Got. Well.

Annie: That's all.

Annie: I've got.

Roger: That's all we got. So take care. Take a vacation this summer and make more money. Make your life easier and get ready for next tax season.

Annie: And we'll be back with some more topics. We've always there's always something to talk about. Roger.

Annie: Yeah, we'll be back.

Roger: We didn't know when we started this if we'd have something to talk about, but that's hadn't been a problem so far. So hopefully, again, there's something that you want us to talk about or let us know. Yeah, let us know. Tell us if you like it or want us to talk about something particular, particularly if something pops in your world and you think it might be systemic to everybody. Shoot us an email and let us know. We'll we'll try to squeeze it in.

Annie: Yeah, absolutely.

Roger: All right, Andy, so what are you going to do now for the summer?

Annie: Well, I am going to the beach.

Annie: You're going to a few weeks?

Annie: I am going to the beach. But I'm in Texas right now and it's hot. I could really use a beach right next door to me.

Annie: So you go to the beach.

Roger: To cool off?

Annie: I'm going to the beach? Yes, to cool off. So what about you?

Roger: I got to go to DC this week and then I will be at most of the IRS forums, which, by the way, if you still register for those if you want to. I'll be presenting a session on Monday nights if you're interested to come to those. But I'll probably just be working and watching my grandson play baseball and it gets hot here too, and then it'll be fall. My favorite time of year.

Annie: Mine too.

Annie: Football season.

Roger: Football season. Ready for it. All right, Andy, thank you. Thanks for all you do. Take care. Thanks for putting this together. Thank you for listening. Tell your friends about the Federal Tax Update podcast and we'll be back with another one shortly.

Annie: Bye, everybody.

Annie: Sounds great. Bye.