Recently I have had two clients come to be with tax planning documents they paid over $5,000 for. When they showed me the documents some of the strategies were things, I had told them to do many times.
Included prominently in the plans was “hire your children and or grandchildren.” While this is a great way to shift income from a business owner to their children or grandchildren, to make it legal the kids must perform services for the business and be paid based on the value of those services. An important part of this planning technique, one that was not included in the $5,000 plan. To add insult to injury, when reviewing the notes from the last two years of tax planning meetings I had with the client, I had to point out that I had been telling them to do this for 3 years. I even told them how I used this strategy to put my three children through college.
Another strategy these tax planners provided was to have the business pay rent to the owner for use of their home for less that 14 days. While one can receive rent for up to 14 days for the use of their home, and exclude the rent received from tax, the rental payment from the business needs to be for a legitimate business purpose, not just to avoid taxes. Rent your home for the football game on AirB&B for 14 days or less and you can exclude the income. Have your business pay you and claim it is rent so you can avoid tax– it’s fraud (as there is no business purpose).
These are just two of the strategies provided by these high-priced tax planning scammers. There were many more, all of which we had either discussed with the client, and they had failed to act on, or they had major drawbacks as they required complex compliance, cost more than what they saved or did not fully disclose what was necessary.
The good news is the $5,000 was a tax-deductible business expense. The bad news is the $5,000 spent was a lot more than the value of the tax deduction.
The problem for the firm and I is do we really need to charge clients an extra $5,000 to get them to listen to the advice we give them? Most importantly, how do we help clients take the actions necessary to put that advice to work for them?