Meet Joe the Window Washer

window-washer-30554Meet Joe.

He’s a window washer, one of the best in the country. He’s developed his own window-washing systems and cleaning solutions.

Joe’s business is the envy of other window washers. They call him, wanting to know his secrets.

Joe’s customers love him.

Joe started his business because he had a knack for washing windows, and he wanted freedom from “workin’ for the man.”

Joe just wants to wash windows and be left alone by the world.

He hates the government. He hates regulations. He hates paperwork, whether it’s government-related, or insurance-related or bank-related. Paperwork really bothers him.

He’ll grudgingly file a tax return at tax time, but that’s the extent of what he’s willing to do when it comes to dealing with bureaucracy.

Joe has thought about expanding his business. His customers and friends tell him he could have a window-washing empire. Some even suggest franchising.

But Joe doesn’t want the hassle and headaches associated with growth and expansion.

He knows he’ll probably never get fabulously wealthy. He knows his business will die when he dies or retires. And he’s okay with that, because he would probably have to hire an attorney to help with planning, and he thinks attorneys are money-sucking leeches.

If Joe works with an accountant, the relationship consists solely of Joe handing the accountant a sheet of paper with Joe’s back-of-the-napkin tally of income and expenses for the year so the accountant can plug the numbers into a tax return and get it filed for another year to keep the government off his case for another year.

Joe has no interest in having an accountant keep his books, or give him business advice. What a waste of money!

Joe just wants to wash windows and be left alone.

Joe is fictional. But he describes more than a few of the small business owners I work with.

And here’s something important that needs said: It’s okay to be Joe the Window Washer.

So much of what we read about entrepreneurship focuses on growth and expansion. If you’re not growing and expanding, you’re a failure.

With Joe the Window Washer, I’m saying it’s okay to keep your business small and manageable. It’s not a matter of “don’t grow your business.” It’s more a matter of “don’t grow beyond your means to successfully manage it.”

That means you have to know yourself and what you can handle. It might mean deciding to keep your product or service offerings and territories small and manageable. It might mean not hiring employees.

It’s okay to be Joe the Window Washer, but it’s important to know that about yourself before you get too far along in growing your business.

And it’s okay to change your mind as the years progress. You might start as Joe the Window Washer and then change in a few years and decide to hire employees or go for big growth.

Or maybe you go for big-time growth at first, and then realize you made the wrong choice and you decide to downsize. That’s okay too.

Joe will be making more appearances on this blog in future posts so look for him to appear again.

Image courtesy of user Nemo on Pixabay.com

My Response to the IRS Saying I Can’t Speak On My Own Behalf

lion-159448Some readers have been curious as to how I responded to the IRS saying I’m not authorized to speak on my own behalf.

Since my dispute with the IRS is over a silly clerical matter, I’m fine with sharing details relating to this case.

To recap: I think my company is supposed to use Form 941 to report payroll; the IRS says I’m supposed to use Form 944.

All payroll taxes have been paid. This is purely a clerical matter over which form to use for my very simple payroll reporting.

If the IRS had simply said, in their September 22nd letter, that they think I’m supposed to file Form 944, I would have dropped the matter and filed Form 944 because it’s not a big deal.

But since the IRS said I’m not authorized to speak on my own behalf, I had to reply.

I kept the snark to myself (snark is for this blog, not official correspondence with the IRS) and I think I was blunt but professional throughout:

Dear IRS,

I am the president of Dinesen Tax & Accounting, P.C. and am writing in response to LTR 3007C, dated September 22, 2014. A copy of the letter is enclosed.

The letter indicates that you cannot make changes to my company’s account as requested on August 12, 2014, because I hadn’t given permission to my “accountant” to act on my behalf.

That letter from August 12th was from me. My company is an accounting firm and I am an accountant, but the letter I sent on August 12th was me writing as the president and sole shareholder of Dinesen Tax & Accounting, P.C., on behalf of my company.

Dinesen Tax & Accounting, P.C. is not my “client,” they are the company that I own.

I continue to maintain that my company should be a Form 941 filer for 2014. However, if the IRS wishes for us to use Form 944 for 2014, and Form 941 for 2015, I am fine with that.

As your records no doubt indicate, all payroll taxes have been paid in a timely fashion, so this is really just a clerical matter as to which form to file.

If you have any questions or need further information, please call me.

(Image courtesy of OpenClips on pixabay.com)

Letting My Hair Grow Back: DIY is Not Always Better

Me, back when I thought a shaved head would save me big bucks.
Me, back when I thought a shaved head would save me big bucks.

In June 2013, I decided to shave my head. My logic was, why should I pay someone $10 or $15 each month just to cut my hair?

I’ll just shave it off and be done with it. No more haircuts, no need for shampoo. I felt like I had made a brilliant decision.

About 6 weeks ago, I scrapped the whole “shaved head thing.” I’m growing my hair back and will be paying someone else to trim it every now and then.

Why?

Because the cost savings associated with doing it myself DIDN’T EXIST.

In fact, I believe I spent MORE MONEY shaving my head than I did on paying someone else to cut it.

I ran through razor blades more quickly. I used far more shaving cream. Since I shaved my head in the shower, showers took twice as long, resulting in more water usage.

Those are true dollars-and-cents costs.

What’s the point of this personal anecdote (or “Oprah Crap” as one reader calls my personal stories)?

The point is: DIY is not always better. Paying a professional to help you is not always bad.

With tax preparation, I tell people the following: if you feel comfortable doing it yourself, you know what you’re doing and you have time to do it, then certainly you should try doing it yourself. But know your limitations and know the value of your time.

With business bookkeeping and accounting: at first, it will make sense to keep the books yourself. But as your business grows, you’ll feel the crunch of time, and keeping the books yourself will be a major drag.

DIY is great sometimes, but it’s not always the most efficient or most cost-effective strategy.

The IRS Says I’m Not Authorized to Speak On My Own Behalf

IRS Notice 9-23-14Filed under “dumb but true things the IRS does.”

A few months ago, I received a letter from the IRS, in which the IRS disputed which payroll form my company should be filing. Without going into all the details, the short version is: I think I’m supposed to file a Form 941; the IRS thinks it should be a Form 944.

In August, I wrote a letter to the IRS, asking them to please update their records to show that I am to use Form 941 as my reporting form.

Last week, I got the following letter back from the IRS.

This is in response to the inquiry of August 12, 2014, from your accountant. We have no record that you authorized him to act for you in this matter. Please notify him that we have replied directly to you. If you wish to authorize a third party to represent you, please complete Form 2848, Power of Attorney and Declaration of Representative.

Where to even begin?

The first page of the letter is attached as an image to this blog post. As you can see, after the IRS tells me that I am not authorized to speak on my own behalf, they go into excruciating detail about the history of payroll forms. The rambling details continue onto a second page.

Here are the thing that stand out to me:

  • A human at the IRS must have looked at the letter I sent in August. This human then made a conscious decision to send me this letter in response. How could this human not make the connection between my company and me? I even signed the letter as “President, Dinesen Tax & Accounting, P.C.”
  • Once the mind-numbing detail of the history of payroll forms is over, the letter apologizes to me for any inconvenience the IRS may have caused, and then the best part of all….
  • The IRS says they are sending a copy of the letter to my authorized representative — meaning, a second copy of the letter was included in the mailing I received.

So to recap:

  1. The IRS says I am not my own authorized representative so they can’t make the changes I requested
  2. The IRS sent me a duplicate copy of their letter because I am my authorized representative

Or at least, this is my interpretation of things.

This isn’t 850 days of incompetence like with the identity theft saga I helped a client deal with, but it’s awfully crazy.

Things Tax Preparers Say: S-Corporation Compensation (Again!)

ID-100264846This really should be filed under “Things Tax Preparers DIDN’T Say”.

And again it’s about S-corporation compensation.

SCENARIO:

S-corporation owner hasn’t been paying himself a salary despite having large corporate net income, and despite taking large withdrawals of money from the corporation. Those withdrawals had always been called “shareholder distributions.”

On the owner’s personal return, all of the corporate net income was reported as ordinary income. He also makes contributions into an IRA.

PROBLEM:

The salary issue is the obvious problem here. But it’s not the only problem.

Normally, contributions into a traditional (pre-tax) IRA are deductible on your personal tax return. But that’s only if you have “earned income.”

Pass-through income from an S-corp is not considered earned income.

He had nothing else happening on his tax return other than the S-corp and IRA parts.

Because he had no earned income, his deposits into the IRA were not deductible.

Worse yet, because he had no earned income, he also owed an excise tax on those IRA contributions because he made “excess contributions” into an IRA.

So to recap: he was working in his S-corp “earning” all of the income the corporation generated. He was reporting this income as ordinary income on his personal tax return. But because he wasn’t paying himself a salary, he had no “earned income” under tax law, so he was reporting all of this income on his tax return, not getting the deductions for the IRA contributions, and paying an excise tax on the IRA contributions as well!

And his accountant had never said a word to him about the need to pay himself a salary or the issue with the IRA.

Things like this don’t shock me anymore.

It would be one thing if the accountant had brought these issues up but the client decided to just keep doing things the same way (this does happen).

But in this case the conversation had never, ever happened.

And since I’m on a roll, I’ll continue with my rant even though the word count on this post indicates I should stop.

HERE’S A BONUS PROBLEM:

The bonus problem is: the propensity that we tax folks have for saying the following: “Oh well. The client gave us financials that showed $0 of compensation. We prepared the return based on that information. Our engagement letter states that we will prepare the return based on the information the client provides, without review or audit. If tax advising is desired it will be given under a separate engagement agreement. If the client doesn’t ask for help on the S-corp salary or IRA issue, it’s not our problem.”

Sure, that’s what our insurance providers make us say in our engagement letters. But I don’t think that absolves us from at least MENTIONING the salary issue, and bringing the IRA issue to the client’s attention.

But I suppose this is a topic best addressed in its own blog post.

Image courtesy of Stuart Miles / freedigitalphotos.net