Professionally Planning Your Income Tax Returns

Most tax planning comes from having investable assets. If your income is mostly all from a W-2, it’s not a tax-efficient income and there isn’t a lot you can do beyond maximizing retirement plans and starting to save for investments. This is especially true if you work in OR. As an aside Clark County is sometimes cited as being the 6th largest tax-paying county in the State of Oregon.

Tax planning comes from investing in real estate, tax-favored stocks, certain mutual funds, and municipal bonds. It also comes from owning a business and having the best business structure and pension plan possible. C corporations now have a much lower 21% rate, but we have to remember that this rate may not last beyond 2020, or even tomorrow.

Most operating small businesses are best off as an S corporation, and most small real estate investors are best off with partnerships or disregarded entity LLC’s. Some noted exceptions are a corporation that is heavily in debt or is doing a stock redemption.

As an aside, an LLC is not a tax entity, but a legal form only. You get to tell the IRS how you want it to be treated for tax purposes, with some rules of course.

Another misconception is that the state, the LLC, or corporation formed doesn’t have much to do with taxes. It’s almost all to do with where your office is located and where you are doing business. The customer’s location is mostly irrelevant, but we have seen some recent inroads expanding the definition of doing business after a strange Supreme Court decision.

Another factor we consider is the presentation of the return. We see business returns with unbalanced balance sheets and expense categories that just are asking for an audit like “Dog” or “Food”, or even ‘Dog Food”. They may have a legitimate business purpose, but they could be labeled better.

We do help with IRS and state representation for existing clients and some referrals. As an Oregon CPA, we can conduct appeals hearings for Oregon issues. IRS and state audits are relatively rare though. Most IRS notices come from matching 1099’s and more, with returns that really aren’t technically an “audit”.

Many others are correspondence audits that target a few specific areas on your return. Face to face audits are rare but it could always be your lucky day. We do help with simple IRS collection matters but try to refer the more complex to local people, many of who are retired IRS collection people.

However, we prefer to do our best to avoid audits by presenting a good work product, and collections issue through encouraging realistic budgeting for taxation. The commissioned real estate agent often has the toughest time due to the need to pay the dreaded self-employment tax in addition to income tax. In general, most self-employed people pay more self-employment tax than income taxes.

In any case, we cover personal returns for US residents, non-residents, and all 50 states. We also handle trusts and estates. On the business side, we handle partnerships, corporations, and non-profits.

We will also provide second opinions or reviews of work done by other professional preparers. However, we do not want to become involved reviewing “Turbo Tax” returns.

About HB Morris Financial Services LLC

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