Atlanta Certified Public Accountant

My client saved over 15K in taxes with the help of a SEP plan

I have the pleasure of working with a successful attorney who’s been practicing law for over 10 years.  He engaged our firm 3 years ago. Last year, he augmented, because of the great work he’s doing, which caused revenue to go up. Great, but this means tax base increases along with it. So he consulted us to tackle a tax plan to lower his tax pays. In the past, we had spoken of depreciation, among different ways of achieving our goal of lower tax pays. This time around, we suggested adopting and investing in a SEP IRA. As you know, a SEP is a retirement plan that and individual can establish through their employer or they can themselves if they are self-employed. Due to this investment, my client was able to write off $51K, and save $15K in Federal and State income tax. Another plus to this, is you can defer income tax into financial products (stocks, bonds, etc.) and if managed right, you can make money over time. Before you decide to invest in an IRA, such as this one, be sure to consult your CPA and financial adviser for a tax plan.

The Benefits of Net Operating Losses (NOL)

No business wants to lose money and no business owner wants to go through the pain of losing money and not knowing whether the money will come back or not. Let’s say that you hope that you make the money back in the future; let’s say the future is a couple of years out.  Well, the government allows you to carry forward losses sustained in a specific year to the future.  These losses can be used to offset future profits, so not all is lost.  Let me give you an example: A client operates in the sector of financial services where the net profits are in the six figures range.  Such business does quite well as the owner has been operating in the industry for over twenty years and has great know-how power in his favor.  However as an entrepreneur, he decided to invest, via LBO (Leverage Buyout), on business ventures in the service industry.  This purchase incurred a lot of sunk costs, as most of the capital was deployed to buy PP&E.  And what is the advantage of buying equipment, especially when it’s financed… Bingo= Depreciation! So even though this endeavor was seasonal, most of the money is made in the spring and summer, it did have some profits.  But the biggest advantage is depreciation at a clip of five figures per year is that it created a Net Operating Loss that has been carried over and had offset the profits of the main business for the last couple of years.  This has been a great advantage during the tax planning stages for a business owner.

 

So my client saved 160k worth of taxes…

How was this possible?  The answer is due to section 179.  My client is in the space of manufacturing and distribution in the southeast region of the US.  The business has been increasing its revenues at a fast pace over the last couple of years due to the excellent service and quality of product, due to positive forces in the industry, and by industries the company operates.  As part of the tax planning during the 2nd and 3rd qtr of 2013, my client and our office met several times to discuss not only the management of the growth of the business but also the possible tax ramification at year end.  Well the discussion always has to start with a few questions: what are the current needs of the business? What are the projected needs of the business? How are resources going to be deployed in order to achieve the goals? What are the alternatives that can be considered in order to lower the tax burden?  Our firm presented an alternative, or buying a piece of equipment that both would increase efficiency, adds capacity and also that would serve and as big write off at once.  This investment of 400K  (on a note taking the last qtr of 2013) represented of a huge tax savings to the client at the clip of 160K worth of taxes (federal and state combined).  The limit for section 179 for 2013 was 500K.  there is no telling on what the limit will be for 2014.  It would be a matter of the congress and the lobbying entities (i.e US Chamber of Commerce) decide what the outcome for 2014 will be.  Nevertheless section 179 can always be a great alternative if the organization is buying a piece of equipment because it is needed and at the same time use the write off.

My Trip to Dubai

During the past year I have had the privilege to serve a client with business ties in the UAE, specifically in Dubai, where I have gotten perspective of how companies of the region run.  My client’s business is a US based company that sells media and tv rights, which then gets syndicated in the Middle East/North Africa (MENA) region .  This region is considered an emerging market where billions and billions of capital and resources are being invested.   Dubai will host the International Expo in 2020, so for that the emirate will double its hotel occupancy rate by building more hotels and expanding its current infrastructure. Of course in Dubai is where the tallest building in the world is located (Burj Khalifa), and home to the tallest dedicated hotel in the world is located as well (JW Marriott), so this will surely bring in traffic for business to pick up momentum.

So, what are the advantages of doing business in Dubai? Well for starters the cost of doing business there can be significantly low as labor costs in many sectors can be arbitrage and by adding and charging premium for the service or product you are selling this would drive a bigger profit margin per service rendered or per product manufactured and sold in the region. The way that the emirate is divided is pretty interesting to say the least.  Lets consider Media City, where all the tv networks are located, as well as tv production and movie production companies are located. Or Business Bay, where many of the multi national companies are located.  This  is the place where many US expats are conduct business.  This American national takes advantage of the foreign income exclusion for tax purposes, by this the first 90K of income gets indexed, but is not subject to US income tax (note: that in order to qualify for this you need to proof residency of either 183 in a calendar year or 330 days in calendar year).  Delerme CPA provides consulting to several US nationals, that are expats, to ensure their companies continue to excel in foreign regions like Dubai.