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Drew Miles Reviews Smart Year End Planning

Aug 21, 2008
1. Smart Yearend Planning--Taxes

There are three main areas we need to keep in mind as the year ends:

1. Taxes
2. Corporate formalities
3. Planning for next year

Revisit the idea of converting your 10 largest expenses. This is an ongoing process that should be done at least twice the first year. It's not realistic to expect you will convert all of your biggest expenses the first time around because it's too big of a task--this is a habit needing to be developed over time. Our largest expenses, habits, and businesses all change over time. As your life evolves, so should your deductions, so keep current.

Strategy: upstreaming income. The goal of upstreaming income is to shift income from this tax year to the next tax year. Whatever your operating account balance is on December 31 will get added, as of January 1, to your last year's income. If you have a $50,000 balance, for example, going into the next year, that's taxable income. You therefore should upstream the money, making it no longer taxable for that year. This strategy is applicable if you have an S Corp, partnership, limited partnership or sole proprietorship.

How to upsteam income:

Upstreaming income is accomplished by setting up a new entity such as a management company with a different yearend than your business. A business's income can then be shifted out of the 2006 tax year to 2007. You will want a contract and invoices to reflect this agreement between your business and management company. Move the $50,000 balance to your management company with a June 1 yearend, for example. The money should be moved ideally at least on a monthly basis, not just once at the end of the year. I recommend taking five to 10 checks out of your checkbook and put them in a file for the upcoming year. In January, if you find out you had some expenses you missed--it'd be a lot better to have a check in sequence that you can write from December.

2. Smart Yearend Planning--Corporate Formalities

There are three main areas we need to keep in mind as the year ends:

1. Taxes
2. Corporate formalities
3. Planning for next year

The power of documentation--shifting the burden of proof:

For those who have an LLC (opposed to a sole proprietorship, S Corporation or C Corporation), it's always better to over-document. By keeping a tax diary, you shift the burden of proof from yourself to the IRS, who then has to disprove its validity.

Annual meeting--an opportunity to have some fun:

Make sure you've done your annual meeting by the end of the year. Why you're at it, you might as well make it fun. You can hold it anywhere in the continental United States without a problem, and you can hold the meeting abroad or Hawaii or Alaska if you can show why you needed to hold the meeting there.

Get corporate minutes and meetings in line.

1. Prepare a notice or waiver of notice (available on Pathfinder's Web site). When you have a corporation, you need to notify in writing by certified mail all the shareholders of the meeting. If you're the only shareholder, you certainly do not need to send a notice to yourself; instead, you can print out a waiver of notice because the notice is unnecessary.

2. Print out a form for the meeting's minutes. Minutes are what you discuss at the meeting (or think about, if it is just you at the meeting). You can hold your annual meeting in Aspen and ski. When you're in the lodge thinking about what you want to do the next year for marketing, etc. and jotting down ideas, this could be your annual meeting.

3. Extracurricular things need a resolution. Resolutions are decisions you made at the annual meeting. You don't need one to take a client to dinner or attend a seminar. You do, however, need one if you rent new space, open up a new bank account, buy a car. It's better to be safe than sorry and have a resolution.

4. This is a good time to make sure you have a medical reimbursement plan in writing. Fill out the form off Pathfinder's Web site and keep it in the corporate kit. Use the same advice in regard to your educational assistance plan. Preparing this document does not take long, but it's very important.

3. Smart Yearend Planning--Planning for the next year

There are three main areas we need to keep in mind as the year ends:

1. Taxes
2. Corporate formalities
3. Planning for next year

Planning for the next year:

a) Operations--What are one or two areas of your business that can be improved? How can you improve your service, stay in better touch with clients, close the gaps in your system? Ask your customers, clients and employees for suggestions. People like the fact you ask, even if they don't have suggestions. For constructive feedback, you need an environment where people can take criticism or self-critique, not pointing fingers but rather give non-accusatory feedback.

b) Marketing--Make it a goal to adopt one new marketing strategy or lead generation strategy per quarter for the next year.

c) Steams of income--Add one or two more streams of income for the next year. If you flip property, try hanging on to one or two to rent. If you have a Web marketing business, add one or two new products or services.

d) Joint Ventures or product--Many of you have a product or book in you.

Tie up loose ends and hit the ground running at the yearend. Write down your goals now and about halfway through the year. Revisit what you wrote down--you will be stunned at how much you've accomplished.

4. Tips from Drew

The big O--Organize!

Get organized. Period. Pathfinder advocates separate files for each expense: utilities, phone, electric, Internet, auto, etc. Each month, invoices (such as repairs or maintenance) go in those files. The invoices are then categorized by group and chronologically (ex. January car bills, February car bills, etc.). When 2007 comes around, copy the file names from last year and start a new file bin for the next year. You can then take this to your accountant's office along with your tax diary and you're set.

If you don't already have an electronic bookkeeping system such as Quicken, Quick Books or others, get one and use it immediately. I learned this lesson the hard way. When I was practicing law, my accountant had me list all of my expenses. It took me 40 to 50 hours to do. The following year I changed over to Quick Books, which condensed those countless hours to the push of one button. Lists off of Quick Books (or other like program) can easily be emailed directly to your accountant.

Get out of dodge:

It's absolutely necessary to get away from business. I need to get away 100 percent, meaning no calls, no email--no business at all. For me to be creative, I need to be recharged and take two or three weeks to see friends, ski, do nothing and relax. When I take a three-week break in December every year, I come back to business in January and it all looks different and I'm energized.

The wealthiest and most successful people don't run themselves ragged. They stop long before running out of steam, taking small- and large-scale breaks to re-charge when needed. You can't do your best thinking when you're running at 80 percent. Take at least two or three three-day weekends each quarter to recharge your batteries.

5. Financial Vertigo: Clear your head

Although Pathfinder focuses on generating money, this lesson covers one of the biggest misconceptions we have about money: if we make more money, we'll be better off. It doesn't matter how much money we make, but rather how we spend and save it. Take two Pathfinder clients as examples: Client A worked at Home Depot making $30,000 a year and had his finances in order and spent less money than he made. He was financially free. Client B was a doctor making $250,000 a year and was financially upside down; as he received salary increases, he'd incrementally spend the increase and more.

The more people make, the more they spend. Being upside down financially affects every aspect of your life: family, marriage, leisure activities, emotional health and the list goes on. Whether you earn a salary of $50,000 and you spend $55,000 or if you're organized and have your finances in a row--there's always room for improvement and new information to learn.

Purpose of the Pathfinder Program:

1. Learn how to get out of debt completely (including your home mortgage in nine years or less)
2. Improve your relationships
3. Pay up to 50 percent less taxes each year
4. Learn how to make a smooth transition into retirement
5. Establish lasting wealth for generations to come

Pathfinder Business Strategies is offering consumers who visit their website a free tax savings special report & CD titled "Tax Secrets of the Rich". For information about these tools visit http://www.taxsavingconcepts.com
About the Author
I have spent years studying the tax code looking for ways to help people lower their tax bill and keep more of what they earn. Drew Miles Find Out More: http://www.taxsavingconcepts.com
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