All Forum Posts by: Brandon Hall

@Rich Lopes the link you posted is referring to HELOC balances counting as acquisition debt for a primary residence. If you use a HELOC for a rental or business use, the interest becomes business interest and is deductible.

@Logan Allec your interpretation of the code is correct. We aren't expecting technical guidance to change the treatment of family held entities under IRC 1256. My example was an attempt to explain that the new interest limitation will affect a ton of people, not just the big guys. Shouldn't have used my father, rather a friend instead :)

@Chris Mason 

re miles: if depreciating vehicle, you wouldn't report on Sch C pg 2 part IV, you'd report on Form 4562. If not depreciating vehicle, you report on Sch C pg 2 part IV (generally). If you're seeing one and not the other, I'd assume there's an error of some sort. Though most professional tax prep software shouldn't cause such an error. 

re comfort letters: I know you were joking, but man I literally spent 4 hours this week sending heated emails to one of my client's lenders who is absolutely baffled that I won't write such a letter. Claiming that they do "1000s of these" per year with no push back from CPAs.... 

Chris, I need YOU to rep my clients. 

@Chris Mason I'm lol'ing at your post :)

what do I have to do in order to get you to shove it all there, and not on IRS Form Schedule C, page 1, part 2, line 9? This difference consistently screws Realtors over when they personally apply for a mortgage.

Mile expenses should be reported on Sch C line 9 and miles should be reported on Sch C pg 2 part IV line 44.

- Will you please write this boilerplate "CPA Letter" confirming that Jessica using all her business funds for her down payment is 100% guaranteed to have zero impact on her business? I just need you to docusign, I've already written the letter and taken the liberty of including your own letterhead. We will insert the homebuyers name later on, it's no biggie that the name is blank, don't give it any thought sweetie pie, please docusign by 3 pm tonight or you hate your client. I'm certain that such a letter will expose you to absolutely NO liability at all!

This actually does expose CPAs to liability, ethic issues, and licensing issues. The problem is that CPAs are rarely, if ever, supposed to provide assurance related to solvency issues. Doing so could cause us to lose our license. 

Lenders are responsible for reaching their own conclusions on whether that cash will be sufficient going forward.

Here's a solid matrix from the AICPA that will help show you where I'm coming from: https://www.aicpa.org/InterestAreas/FRC/DownloadableDocuments/Third_Party_Verification/Comfort_Letter_Response_Matrix.pdf

@Andrew Fielder For tax prep, the fees seem high to me, but I don't know how many K-1s you are issuing nor do I know the complexities the CPA firm may be facing. If you are issuing tons of K-1s to investors, I can see how the fees could be justified. 

In terms of the fixed prices for tax prep, ideally, in the future, the price will always remain fixed. Thus, when your profit increases, the fees don't increase proportionately. 

Ultimately, every tax return will be labor intensive, some more so than the other. I always laugh when someone says "If I bring you 50 entities, will you discount them?" No, because it's still the same cost for me. There's little-to-no economies of scale related to this type of tax preparation (and trust me, we've invested a crap ton into our technology). 

Should you hire an in house accountant? It's a decent thought, but your talent pool will be limited. You'll be relying on one person, rather than a firm with processes in place. You can scale into a CPA firm, but a single hire will always have some form of ceiling. 

Over time, as you scale, I'd argue the advisory component will become more and more valuable. Your model may be the same, but the larger you get the more complex it will become to manage. Knowing when to make strategic financial/accounting/tax moves will become much more valuable than preparing tax returns. 

I have no idea how much revenue you're generating, but you may want to look into outsourced CFO services. @Taylor Brugna is the guy at our firm that runs that side of the business, so he may be able to dive deeper into it than I can.

An outsourced CFO will help you navigate everything, from advice to compliance, and help you make financial decisions. They will manage your books, taxes, your budgets, vendors, clients, investors, and provide transparency into the financial side of the business. In my opinion, that's where the most value is added once you scale to a certain point. 

Hire a good CFO, pay $250k. Outsource to a CPA firm, pay 1-2% of revenues (generally).

If you're not at that point yet, but you plan to scale to that point, you need to look into CPA firms that provides that service. Because at some point you'll need it, and already having built out relationships will save you tons of time, money and stress.

Thanks @Upen Patel!

Full disclosure, @Taylor Brugna and I now work together @Chris Mylan.

@Joe P. In my opinion, that's too much for just tax planning based on your income level. 

With tax planning, you should receive significantly more in tax savings than you spent on the service. At your earnings level, based on what you are doing, a few minor tweaks can likely save you $5-8k per year. But that wouldn't necessitate a hard core tax planning service.

When we do tax planning, we want the client to return 3-4x the cost of our service. I would feel extremely uncomfortable quoting you $4800 because I know you would not be saving $15-20k in taxes as your NOI is simply not at the level that allows for those savings.

I'm biased, but I vote monthly fees :)

I originally ran my CPA firm like any other: hourly rate, "see ya once a year" for tax prep, slow email response, etc. Problem was that it didn't encourage anyone to pick up the phone and call me. It certainly didn't lead to a proactive advisor-client relationship.

Ultimately, I realized that my clients were not getting the advice they otherwise could be getting if I restructured how we work with clients.

Are monthly fees better than hourly/once a year tax prep fees? Nah, I wouldn't say one is better than the other. It's comparing apples to oranges and just depends on what type of relationship are looking for. 

We have a 12 month agreement where we bill clients monthly. Here are the benefits (as told by our clients):

1. Someone is always there to answer your questions
2. Fast replies to emails (we've won a ton of clients from other CPAs and EAs because we reply within 24-48 hours rather than two weeks later)
3. Pricing is known and transparent, no surprises
4. Bill aligns with rent collection, easier to budget
5. Phone calls are included in the plans, meaning we WILL talk multiple times throughout the year = proactive
6. When a letter is received from the IRS or state, simply forward to our team and we take care of it, again without any surprise fees.

Benefits from my perspective:

1. Forces our team to reach out to clients consistently (after all, we are billing monthly and want to make sure you're deriving value)
2. I can better manage my cash flows which means I can better plan for capacity which means I can hire high quality CPAs that stick with me all year rather than staffing up during tax season and then getting rid of everyone.

@Jay Hinrichs service based business do not qualify for the full 20% passthrough deduction if the taxpayer's taxable income is above $157.5l (single) or $315k (married). 

As @Vlad K. mentioned, the deduction is phased out for service based businesses. Once over the phase out thresholds, no deduction is allowed for service based businesses.

The NAR has taken the position that real estate agents are classified as service based businesses.

@Account Closed all service businesses qualify for the pass through deduction as long as the taxpayer’s taxable income is less than $157.5k if single and $315k if married.