P:  Welcome to another Sunday’s edition of Tax Talk. This is Pat Dougher. We have Jeff Pickering CPA Master’s in Taxation, Rex Hogue of Bolinger & Hogue BigTexLaw.com and we’ve got a great show. Today is all about June weddings.

J:  June Weddings! It is June and this is the time when most people get – I don’t know why June is the month, but everybody gets married in June.

R:  Actually, I know the reason for that.

J:  What is the reason?

R:  Back in the old days, people took a bath in May. They smelled a lot better in June than they did in April.

[laughter]

P:  He is actually right. I have heard that useless bit of information. But yes, that is correct.

J:  We should point out that all three of us are married.

P:  Yes, and we did take a bath, and it wasn’t just in May. So you’ve got a checklist of some of the things – because the topics today are really on what are the tax implications of getting married, and how to prepare for it.

J:  Right. Every bride has a checklist and, of course, the groom’s got it to. There’s the wedding cake, there’s the tuxedos and the bridal gown. Who’s going to be the photographer? Put on that checklist “see your tax advisor.” Both of you should bring in your tax returns from at least three years ago. Go talk. See if you’re on the same page tax-wise. It’s important to get this done before so that you can limit your arguments afterward.

P:  Now, I know that you’ve got probably a slew of clients that have, well, walked through the door without looking under the hood.

J:  Oh, happens all the time.

P:  Okay. What are some of the problems people can run into?

J:  Well, the most common one is – I don’t know why it’s the guy, but usually it’s the guy – has a tax problem. Maybe they ran a business and had some payroll problems. But usually, the guy has tax problems from way, way back and these don’t come up until after they’re married. After they’re married, all of a sudden, they get a notice about something and, “Oh yeah, that’s from six years ago, honey.” It’s a $50,000 tax liability.

Or what could happen is they were planning on getting a big refund and, all of a sudden, it gets snatched out from under them because…

P:  He’s got an obligation.

J:  He’s got an obligation that was a past obligation.

R:  Really, part of the problem is that women tend to be better organized than men and they tend to have their tax affairs in better order at the date of the wedding. A lot of times, they haven’t – especially if a woman is moving straight out of her parent’s home into a marriage which happens more often that way than with men – they haven’t had a chance to mess anything up yet.

So typically, women are either more organized or they go into it with fewer problems just because of life.

P:  Well though, there is the other alternative which is the remarriage. They’ve been married, they went through a divorce, they’re getting remarried and there’s a fear factor of learning too much even though you should.

J:  Right. You definitely need to take your future spouse in and talk about – get your tax returns, find out what’s there. See if you’re on the same page. One of the biggest problems in marriages talks about money, and taxes are at the heart of that.

P:  You’ve got your checklist. Visit your tax planner.

J:  Basically, that’s the main thing. You want to visit your consultant, bring in your prior year returns. You want to lay it out there and see if there’s going to be any issues.

P:  Very good.

R:  Yeah, you’re going to have the issues and a lot of people, they would rather bury their head in the sand and deal with them later, but that’s really a very bad strategy. They need to know up front, like any other big issue in a marriage.

J:  Sure. We’re a community property state. Most of our listeners know what that means. That means that you own most…

R:  Actually, I suspect most of them don’t. They just think they know what it means.

J:  Okay. Well, go ahead, Rex. Tell us.

R:  Well, one of the challenges – people assume once we get married, everything’s community property. That is far from true. A lot of times, people think, “No, if it’s just got my name on it, it’s separate property.” That’s not true either.

So, one of the advantages of sitting down and talking with your tax advisor is you can sort through those kinds of issues, and know how to do things and not make mistakes that can just be devastating later on, like we’ve seen so many people make.

P:  Even before the show, we were talking about this looking under the hood for what’s the rest of the story. And you said that’s actually one of the reasons for prenuptials.

R:  Yeah, and we don’t recommend a prenuptial in every single case, but a lot of people think that a prenuptial is only about planning for divorce, and nothing could be further from the truth. There are some other issues.

So just going to talk about what happens when the woman marries the bad boy who’s into it with the IRS. Well, a prenuptial agreement can actually protect her in that circumstance, and it’s not about them getting a divorce. It’s about protecting her from potential problems with the IRS, or maybe creditors of his business or something like that.

P:  That’s great. Well, I know we’ve got more on the checklist. I would encourage you, if you’ve got questions about a June wedding or the marriage situation – and I hate to use it that way, but it really kind of is; marriage is a situation. It’s (214) 787-1570. You’ve got an opportunity to ask a CPA, Master’s in Taxation, and Estate Attorney question about your future in planning.

And planning is so important. We say on the show all the time, “The more you know, the more you get to keep.” Sit down with these guys and visit with them about ways that you can keep more of what you make.

I know, Jeff, you’re up there in Plano. You’re a local guy. What’s the crossroads again?

J:  It’s between Legacy and Spring Creek on Preston Road.

P:  Very good. So it’s 6533 Preston Road, Suite 300 in Plano. You can call him at (972) 378-5200. And Rex, the best way to get a hold of you guys, and I know you’ve got a report this week, right?

R:  We do. We’ll talk about the report here in a little bit. But yes, we’ve got a $69  report that we’re offering for free. The best way to get in touch with us is through our website. Contact us at BigTexLaw.com. Go to our website, go to the ‘Contact Us’ tab, fill out the information and we can get you whatever you request.

P:  Sure. I know this week, it will be on the family estate planning. I know that’s what so much of this show is really all about. There’s so much more information. Do you want to give us one more before we go to break?

J:  You mean a tip on what’s going to happen? Yeah, when we come back, we’re going to talk about what happens when you marry the bad boy – or girl, but it’s usually the boy.

P:  Us guys, we just really do it to ourselves, don’t we?

J:  I don’t know what it is. It’s the gene. So what you can do; what you can do if you have a tax problem that’s entered into your marriage and it’s become a source of conflict.

P:  And Rex, we’ve got more to come with the whole estate planning after the break about what are some keys that you can do to prepare.

R:  Right. We’re going to talk a lot about things you can do to prepare for that wedding from a legal viewpoint, and really in addition to seeing your income tax advisor, you really ought to see your estate planning attorney because the day that you get married, you instantly create some new issues that most people never think about. They should be dealt with as well.

P:  I agree. (214) 787-1570. This is Tax Talk on Radioactive KLIF. We’ll be right back.

[commercial]

P:  Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, noted Rex Hogue of Bolinger & Hogue, BigTexLaw.com. We appreciate that because he is a very accomplished author and several other things that go with being an Estate attorney in the Frisco area. I didn’t mention that you guys are up there just north of…

R:  Just north of 121, just south of Gaylord on the west side in the Starwood Medical Offices.

P:  Very good. Well, today is the wedding talk, the wedding show on Tax Talk. It really is all the ways that you can save some money on your taxes. We went through a little, short checklist which we’re continuing to expand because the fact is that you really do need to look at a person’s history, right?

J:  Right. You’re getting married. You’re getting married to their past as well as their future. So their tax past is something you’ve got to check into.

P:  Very good. Well, we’ve got a caller on the line. If you want to call in to ask either one of these two great guys a tax question or estate planning question, call into (214) 787-1570, #KLIF on your Sprint phone. If you’re outside the DFW area, it’s (800) 583-1570. Paul, you are on the air. You’ve got a question about a family limited trust.

Paul: That’s correct. Hi, guys. I appreciate the time here.

J:  Glad to, Paul.

Paul: I’ve got a situation where – and I don’t want to call it a situation; that’s probably the wrong word. But I am planning on getting married again. The two parties involved in the marriage – one has a high net worth in real estate, and the other does not.

All of that net worth is in a family limited trust. How would the prenup add to the protection of that in the event that the marriage did not last?

R:  Paul, when you say a family limited trust, the thing that comes to my mind is you may mean a family trust, you may mean a family limited partnership. I’m not sure.

Parties need to sit down and talk that through because there are – let me assume for a moment you mean a family limited partnership.

Paul: That’s correct, yes.

R:  Okay, a limited partnership. Well, there are so many different ways that they can be designed that it’s impossible to answer a question without looking at what the documents are and what they do, and trying to figure out what it is that you’re trying to accomplish.

The documents just pretty much are everything. What do they allow? Some limited partnerships allow really a lot of leeway as to transfers, and a lot of others don’t have much leeway at all. It depends greatly on what the documents say.

J:  It’s tough. I’ve had clients where the situation arises when there’s a high net worth person. Usually, it’s no problem if the guy is the high net worth person, except unless he decides to later divorce.

But there’s usually some issues where the female, the woman, is the high net worth person –it’s just my observation; I have lots and lots of clients – that it’s very difficult for the guy to be in that position.

R:  And one of the things you have to look at is, a lot of people don’t realize that income, when you get married, all income becomes community property. But if you have income going back into separate property, you obtain it for community property purposes and that can just create a real mess.

It’s one of the reasons that you need to sit down and talk to a tax advisor beforehand and learn this is how – what you’ve already got – this is how the income from it is going to be treated, and this is how you need to make sure that that income gets funneled so that you don’t create problems you don’t intend to create.

J:  Right. When you get married, if you get married to this high net worth person and you file the joint tax return, you’ve got to remember that is a joint and several liability which means the IRS can look to either one of you for 100% of the tax liability. That’s a new concept for people who are not married, who haven’t been married. Actually, it’s a new concept for people who are married because a lot of them don’t realize that.

R:  We had a situation a few years ago where a relatively high net worth wife went into a marriage, got a prenup, who was with a husband who had a business and had a lot of tax issues going in. She really regretted that she did not sit down and talk to somebody before they got married because they filed jointly the first year and she had just been stuck with all kinds of things that could have been avoided with just a little planning.

She loves her husband, but doesn’t love the problem that created. So Paul, you need to sit down and talk to somebody and have things really looked at.

J:  This is definitely an advisor situation.

Paul: Agreed. Okay, guys.

P:  Thanks so much, Paul. We appreciate the call.

R:  Thanks, Paul.

P:  Well, that was excellent because he was able to at least look at some of the potential problems. I know that it looks like he really ought to sit down with either or both of you, and figure out exactly what the document says and where to go from there. Would that be about right?

J:  Yes, definitely.

R:  Yeah, there’s both income tax issues and estate tax issues involved there.

J:  Yeah, we love to see young couples, even old couples.

P:  I know you guys will sit down with somebody for 45 minutes, visit with them about what’s going on, look at their information and then just see where it needs to go and if they want to follow through, they can. Correct?

R:  45 minutes at no cost, we might add.

J:  For us, what we do is we bill 45 minutes unless they have a business, or are trying to get into a business because we do business consulting, startup consulting, also.

R:  Jeff, would you consider a family limited partnership to be a business, though?

J:  Yes, I would consider that a business. Anything that files a business return.

R:  We do, yeah.

J:  Definitely.

P:  That’s good. (214) 787-1570 to ask a CPA, Estate Attorney questions about what is going with your, essentially, legal marriage. This month, it’s June weddings so let’s talk about that.

J:  That’s right.

P:  I know that we want to get into the estate planning. I know that, Rex, you actually even have a special definition for that. Would you talk about that?

R:  We do. Our definition of estate planning, I’m just going to read it for you. “I want to control my property while I’m alive, and carry myself from my loved ones if I become incapacitated, if what I have, to whom I want, the way I want and when I want. Make sure assets I passed to beneficiaries are protected from their current creditors, respective lawsuit creditors and a beneficiary spouse in case of divorce once it passes hands, make sure assets I pass to beneficiaries don’t make them ineligible for programs to which they would otherwise be entitled, minimize professional fees and court costs while effectively administering my affairs, and save every last tax dollar possible.”

Seven points to that definition and our experience is that when people sit down and talk about estate planning, they want a plan that does all of those things most of the time.

P:  That sounds like it would be very hard to read or say very much.

R:  Well, if I hadn’t done it so many times, it would be very difficult to do.

P:  That reminds me of something I heard at A&M a lot.

R: Nothing that long there.

P:  Yeah, really. [21:28 inaudible]. What’s the real – when you think of title or property?

R:  Well, title is so important. Even in Paul’s question, you kind of see this. The way that people own property, really you can start and estate planning with title to property if you understand it.

Two basic types – you can either own it individually solely; all by yourself or you own it jointly. If you own it jointly, it becomes complicated because it could be with or without right of survivorship or it could be community property; really three different ways.

And if it’s community property, it could also be with or without right of survivorship. Community property has so many implications in family law, probate law, tax law and debtor-creditor law – and it’s different. The definition for community property is different in all four areas of law, and people need to understand that when they ask the question, “Is this community property?” you can get a technically correct answer that’s useless because you’re talking about one area of law and the person who’s answering the question is talking about a completely different area of law.

As an example, if you’re talking to a family attorney, to them, community property is any property that the court can divide. But if you’re talking about the tax law definition, it’s any property that meets the IRS’s definition under Section 10149 which, by the way, is on the test at the end of the show.

[laughter]

About whether or not it is community property and what happens with right of survivorship property. So they’re just different.

P:  That’s excellent. For me, I’m such an Aggie. This report, is it pretty easy to read? Because legalese is something that is just hard.

R:  It is pretty easy to read; very easy reading. It’s really written on a fifth-grade level. Hard for a lawyer to write that way.

P:  Good. That will be just good enough for me. So just go to BigTexLaw.com. Go the ‘Contact Us,’ fill out the information, request family estate planning guide and the special report and you guys will send it to them.

It really is a good bit of information that, like you said, it’s not written in legalese which helps me and you’ll enjoy it.

I know we’ve got so much more of the show to go. We’re going to continue with the wedding theme and look at different kinds of problems with probate, and joint tenancy and some other issues with the “bad boy,” and how to protect yourself from them.

With that, I know we’re going to a break here in just a second. You can call into (214) 787-1570. This is Tax Talk on KLIF.

[commercial]

P:  Welcome back to Tax Talk. This is the show for June weddings. I know there’s so much information out there on all the things you need to put a wedding together, or a marriage together. But tax implications are huge. We’ve been talking about that with Jeff Pickering, Rex Hogue about the different things that you need to make sure you check off your list; one, of course, is talk to one of these guys.

R:  Both of them.

P: Yeah, at least. That’s correct. There are so many ways to protect yourself from the bad boy. Why don’t we learn about the bad boy.

J:  Okay. This is your typical situation. A woman gets married to – is attracted to the bad boy who has got plenty of personality, and also past tax problems. This doesn’t come up until later on. You find out that your refund got snatched, or you started getting notices.

There are three things that basically you can do if this has already happened to you. Hopefully, you saw us and we could help you in avoiding these things; the notices and things like that.

You can have something called Innocent Spouse Relief, and you can have what’s called Separation of Liability. Then there’s something Equitable Relief which means that if none of those two worked, then it’s like the third category; a catchall category. But you are at the mercy of the IRS when you choose equitable.

P:  If you were to look for Innocent Spouse, what are some of the components to applying for that?

J:  Well, basically, if your spouse – or it could be your former spouse – if they fail to report income, improperly reported income or improperly claimed credits and deductions. There’s a big Seventh Circuit court case that’s happened right now, which is bad for the Innocent Spouse people.

You’re supposed to search your innocent spouse two years after they start giving you collections notices. This poor lady married to a dentist, the dentist was accused of Medicare fraud. He died. She said, “I need Innocent Spouse.” He said, “Yeah, no problem. I’ll file it for you.” This is after all the Medicare stuff came out. He died before filing the Innocent Spouse, so she thinks that her Innocent Spouse is filed.

P:   Oops.

J:  It’s not, and it’s past the two years when she finds out. So she goes to court and the court said, “It’s too bad. You were supposed to have two years to file your Innocent Spouse.” Unfortunately, for that poor lady – she has Equitable Relief, but she has to rely on the kind-hearted people at the IRS for Equitable Relief.

R:  Which they are neither kind, nor do they have hearts. So that may be a problem. One of the things about Innocent Spouse, to me, on the research I’ve done, maybe not as much as you, Jeff. But it seems to me that a common element is there has to be some lack of control by the spouse claiming Innocent Spouse.

J:  That’s right.

R:  If they genuinely didn’t know and didn’t really have the chance to know…

J:  Or shouldn’t have. Yeah, shouldn’t have known. The Innocent Spouse usually falls down when one of the spouses has education that’s related to finance.

R:  Right, like being a tax professional, it would be different for you and I to claim Innocent Spouse if our spouses did something.

J:  But, believe it or not – I’ve seen cases where a CPA has filed for Innocent Spouse, had no idea what the other spouse was doing and should have, unfortunately, but she was denied Innocent Spouse Relief.

P:  Well, isn’t that one of the keys, also, is know where the finances – who’s controlling them and then monitor between the couple and know where certain paperwork is.

J:  That’s on your checklist, too. You should decide – besides deciding who’s writing the checks; is it going to be a joint or separate checking account. One of the things you’ve got to understand when you’re getting married is where the tax documents are, and you have to understand that it’s a joint and several liability. So you are responsible for that return when you’re assigned.

R:  A lot of people don’t realize this. When you file a tax return, you file it under penalties of perjury. You’re saying that what’s on that report is accurate. Al Capone learned that.

J:  Unfortunately, if you have the IRS prepare your return, guess who’s responsible for that tax return?

P:  You.

J:  You; not the IRS.

P:  Ow. That’s like handing the KGB some secret documents and saying, “Hey, keep your mouth…” No. [laughs]

R: It’s very gracious of the IRS to do your return for you.

J:  Yeah, it’s very nice of them to do that, but you are ultimately responsible. And as a tax preparer, I’ve got to tell you, this is something that many tax preparers won’t tell you is that they sign the return, but you’re the one liable for the taxes.

R:  Yes.

P:  Now, isn’t there some benefit in having someone like you, Jeff, do the return for them?

J:  Definitely. There are benefits. You can get out of penalties if you have a professional preparer prepare your tax returns – and they’ll keep you out of hot water, just as a matter of fact. You may be able to sue your preparer if he’s done something wrong to injure you. But ultimately, the taxes are yours.

P:  And having someone else do it is not a software package, right?

R:  Right. That works with Turbo Tax, right?

J:  No. Turbo Tax doesn’t count, doesn’t get you out of the penalties. You cannot use a software to say, “A professional preparer prepared my return. Please get me out of the substantial understatement penalty,” for instance.

R:  Now, a lot of people don’t realize if you file your own return and you fill it out all nice and neat on a computer, you’re becoming an audit risk because you’re a target now. They know that Turbo Tax, you probably used something like Turbo Tax. We’ve talked about on this show, has some errors in it.

So if you’re going to fill out your own return, at least do it by hand. Give yourself a chance to not be caught in that little trap.

J:  I always recommend that people just go see – if you do your return yourself, at least have a preparer do it once every three years just to look over your shoulder, just to make sure you’re doing things right, make sure you’re caught up on all the tax laws.

R:  We actually recommend that they have a professional prepare it once every three years as well as the two years in between.

[laughter]

J:  There you go.

P:  I understand that. When we’re looking at some of these things that have to do with married or unmarried. Now there’s a new designation out there – domestic partnership.

J:  Domestic partner. Domestic partner, hopefully, if you have someone in the room that doesn’t need to hear this, you may excuse them. But we’re talking about domestic partners which is another word for same-sex marriages. Our state of Texas doesn’t have, doesn’t recognize same-sex marriages or domestic partners. Many other states do.

R:  Some other states.

J:  Some other states; not many.

P:  California is a big one.

J:  California is a big one. The Defensive Marriage Act kind of butted heads with California’s marriage law, same-sex marriage law. So what California did is they said, “Okay, we’re going to have something called Domestic Limited Partners.”

Domestic Limited Partners are not married; they just have all the same property rights as married people.

P:  Until they get to Texas.

R:  Then they can’t get a divorce because Texas doesn’t recognize homosexual marriage; therefore, how do you get a divorce when the state doesn’t even recognize that you’re married? And some people think that’s horribly unfair on the part of Texas, but the fact is when they went off to California and got married, they really agreed to live under California law and then they come back here and want to play by those rules under Texas law and the world doesn’t work that way.

J:  Right. The big issue you’re saying to yourself is, “I’m not a same-sex person; why am I interested in this topic?” Basically, I want to tell people out there, even same-sex couples, these people that are registered under the domestic partnership law, if I have that couple in my office, I’m going to be able to save them lots of taxes because they act like a married person, they share a bank account, assets; all that other stuff like a married person. But the tax laws regarding related parties doesn’t apply to that couple.

Now I should also mention that California’s Domestic Partnership Law, it allows for opposite sex partners, as long as one of them is eligible for Social Security. So it’s possible, and this is kind of in a crazy world, that people can get not married in California, they’re opposite sex couples; they could be not married in California, as long as one of them is old enough, and still avoid all of these related party rules which every time I look around, when we’re doing tax planning, there’s always a related party rule to keep you from saving taxes, like I can’t sell a property to my wife and create a tax loss. That’s a big one.

P:  Isn’t that amazing? Well, I know that there’s so much to that, and we’ll get back to this in just a second. The one thing I want to do is encourage you to connect to Jeff Pickering and Rex Hogue. Jeff’s at (978) 378-5200 up in Plano in between Legacy and Spring Creek on Preston. Right?

J:  Yeah. Between Legacy and Spring Creek on Preston Road, 6533.

P: And Rex, you guys are out in Frisco, but you’re just north of 121, right?

J:  And just south of Gaylord Parkway.

P:  Very good. The best way to connect, and I would even get the special report on family estate planning, is go to BigTexLaw.com. Go to the ‘Contact Us,’ fill out the form and ask for it. It’s a great report. If you have questions, you can call in (214) 787-1570. We’ll be right back.

[commercial]

P:  Welcome back to Tax Talk. We have had a great show today. This has been all about June weddings, getting married to the right person. Well, at least, making sure that you know what’s the rest of the story.

J:  Sure. As I said, you’re getting married to that person’s tax problems as well as the rest of them.

P:  And I know that you brought up several points as far as how to protect yourself from the bad boy, so to speak; the history. That was really good. One of the things I do want to mention is that we transcribe these shows, and they end up on all of our sites one way or the other. I know you guys put the recording, Jeff and Rex, you guys put everything and the transcription. At DoerSuccess, we do as well. Always great information if you ever want to follow up.

One of the things I had just noticed is we hadn’t given out Rex’s information as far as his phone number. It’s (972) 309-0104. You can find that also at BigTexLaw.com. They’re offering the free family estate planning guide this week, or special report. You want to make sure you get it. It will help you a ton to make sure that you’re setting up your estate, from the beginning, the right way. Wouldn’t you agree, Rex?

R:  Absolutely. If you do call in, the easier way is through our website. But if you do call in, leave a message in Marilyn’s box, not mine; Marilyn’s box.

P: Very good. Well, I know you wanted to cover a couple more points on this family estate guide. So go ahead.

R:  Yeah. One of the things that we talk about in this report is probate. A lot of people, particularly there are some estate planning attorneys out there who talk about probate like it’s a huge problem.

The truth is probate is a solution to the problem. The problem is we need a signature from somebody, and we can’t get it.

P:  What’s the definition of probate?

R:  Well, probate can be defined as the court supervised transfer of assets for somebody who has died, or the court supervised management of assets for somebody who has become incapacitated. Our definition is it’s a lawsuit you file against yourself at your own expense to protect your disgruntled heirs and your creditors.

But that doesn’t mean that probate is always bad. There are times that you do need it, and I’m not one saying that it’s really a problem; it’s just not always a good solution to the problem.

One of the things that we talk about in the report is right of survivorship. A lot of people don’t realize the significance of having right of survivorship. It is one of things that I honestly think anybody who actually knows what they’re doing would never use it.

P:  Why do you say that? Because if you buy a mutual fund or something like that, “Do you want joint tenant with right of survivorship?”

R:  They don’t realize the danger, but it creates tax problems, it’s a great way to disinherit your kids. You can even disinherit yourself with that kind of property if you own it with another person.

If you own it with your spouse and you have children from prior marriages, you may be setting up World War III between your spouse and your children from prior marriages.

If you put your child’s name on and your child has a debt, or they go through a divorce, or they’re involved in a car accident where there’s a lawsuit or their business goes bad, you could lose your property and that’s where we talk about you can disinherit yourself.

But worse, what if you have, let’s say four kids, you have the oldest child’s name on as the right of survivorship, you die, it goes to the older child.

P:  And no one else gets anything?

R:  That’s right. They don’t get anything. So it can be a real nightmare. The thing that people are trying to accomplish with right of survivorship, there’s a far better way to do it that doesn’t create tax problems, it doesn’t start World War III, it doesn’t cause you to put your own property at risk. There’s just a lot better ways to do that.

P:  Well, one of the things that I think a lot of people might be concerned about is the cost in all of those things. It doesn’t cost anything to sit down with you guys and begin the process, does it?

R:  That’s exactly right. Our report today, which technically is called “What Everyone Should Know About Effective Planning for Incapacity and Death.” $69 report.

We outline some of these problems and one of the things that we ask in there, people will say, “Can I afford to do quality estate planning?” And I tell people that’s the wrong question. The real question is, “Can you afford not to? Can your family afford for you not to do it?”

Another thing that we talk about in the report is what we call planning by the box; beneficiary designations on life insurance, retirement plans, pay-on-death accounts, transfer-on-death accounts also create all kind of potential problems.

Now, you have to use those sometimes because that’s just how some assets are passed, but it’s important that you coordinate them.

Another thing that we talk about is challenges with wills. Sometimes, the ‘I love you will’ – “I give everything to my spouse is really, “I don’t love you, but this is the appearance of loving you,” because it can create tax problems, World War III between the kids, will sometimes, if there’s a dispute in the family, having a will is almost guaranteed to cause it to erupt after death.

Another thing that we talk about in here is the do-it-yourself kit, which we like to call the Do it yourself brain surgery kit. I’ve been calling it that for years.  Here, we talked about this just within the last couple of weeks. Legal Zoom now offers a way to do that. Legal Zoom is being sued because it turned out to be the Do it yourself brain surgery kit.

So in our report, we talk about those issues and the good news, folks, is we do also talk about a solution. I’d love to get to it, but we actually have a fascinating thing that Jeff brought up that I want us to get back to.

Jeff, we were talking about what happens when two people live together and they’re not married. And let’s say they have the business together, and then ultimately that business grows; it becomes a huge success, but they discover that their being together is not such a great success.

J:   Right. So what would happen is if they were not married, what they would have is a taxable event on them separating. If they were married, they would pay zero taxes because it would all be a transfer of the marital estate.

R:  What a nightmare. And that’s not the only problem. I always tell people, today it’s a lot more common for people to live together and not be married, but once again, I say if people really understood it, they would never do it. Legally, it’s a nightmare; they’re not protected, they don’t know what liabilities they have, they don’t know what kind of tax issues they’re facing.

P:  That is so critical. Like I say, get the report. Get with Jeff and Rex this next week. I would just encourage you to do that. To connect with Jeff Pickering, it’s (972) 378-5200.  And someone’s there, right?

J:  Someone is there right now if you’d like to call right now.

P:  And then with Big Tex Law or Bolinger & Hogue, it’s real easy. Go to their website, BigTexLaw.com, connect through the ‘Contact Us’ and fill out the form. If you want to, just call them (972) 309-0104. They’re just up there in Frisco at 2595 Dallas Parkway.

Local guys. Both of these folks will sit down with you for 45 minutes to make sure you get where you want to go with your finances, with your taxes because in our book, the more you know, the more you get to keep. We’ll talk to you next week here on Tax Talk Sundays at noon. We’ll talk soon. Thanks, again.

P:  Welcome to another Tax Talk this Sunday. It’s Patrick Dougher. We’ve got Jeff Pickering CPA, Rex Hogue Attorney with Bolinger & Hogue in the North Texas area, and we’re here to answer questions on taxes, and estate planning and things that would really effect, well, how much the government gets.

We believe that the more you know, the more you get to keep. That’s what this show is all about. In fact, one of the things that I want to encourage you to do – we have a show lined up, lots of information that has to do with loopholes in the taxes to the, what I’ll call, tax earthquake out in California that all of us that are married should tap into and learn to bring into our world, as well as some of the things that have to do with IRA Roth conversions and more.

But if you have a question that you would normally ask an accountant or an attorney, a tax attorney, then you really do want to try to call in. You can call in at (214) 787-1580 or if you’re on a Sprint phone, it’s just #KLIF. If you’re outside the area, it’s (800) 583-1570.

The one thing I want to make sure is that if you have a question that you would normally ask an attorney or a CPA, you’ve got the best around me, in my opinion. The reason I say that is I know that Jeff has a Masters in Taxation and Rex has been an attorney for 17 years helping, literally, their clients not have to pay as much to the government and that’s the thing that we’re really trying to emphasize.

I know we’ve got a lot of information to go to, and I want to get with Jeff because there’s a new – all I can think is it’s a new earthquake out in the epicenter of all of that stuff which would be California and couples.

J:  That’s right. Before we get to that, let’s do a deadline or two. We have a deadline for the foreign bank accounts, the FBARS. If you’ve got $10,000 or more in a foreign bank account, then you’ve got to file a report saying you have that by June 30^th, and that’s a criminal offense if you don’t. It’s not like a speeding ticket; It’s a big deal.

P: I see. I know the other thing we do want to make sure, because we didn’t mention it last week – it was a prerecorded show last week – and that was how thankful we are for the military audience out there.

The fact is that we just went through Memorial Day. I’m so thankful. My son is in the military, so it’s a big deal to me, and I always want to say thanks to those folks. But then also, Rex, you were telling me that today is the celebration of D-Day.

R:  Anniversary of D-Day.

P:  Right, and I shouldn’t say celebration because I know that they said 160,000 troops were involved in that assault and almost 10,000 of them lost their lives.

R: Yeah, I think the numbers are actually – there was more people involved and more lost their lives than that, but it was a turning point. It was really the battle that, for certain, sunk Germany if the rest of what was going on hadn’t. That had to happen to, ultimately, get Germany to surrender.

P:  I heard that; that it was the turning point and we’re so thankful for all of the military that have committed so much of their life to protecting this country, and we’re thankful.

R:  That’s right.

J:  We have some tax laws that are good for the military. There are some military pay exclusions. There are exclusions for people serving in a combat zone and also extensions for those people. So the military people generally know about that, but I just thought I’d mention it in case anybody’s forgetting.

P: I have a question for you about that. He is from Illinois. That’s where he went into the military. Well, they have a state income tax there and he said, “I want to change my residence to Texas.” Is that something they can easily do?

J:  That is a good question. I know there is an exception for military. My dad was also in the military, as yours. When we were overseas, he changed his state to Texas because they don’t have state income tax.

P:  That’s right.

J: So I know that when you are overseas, you have to pick a state, but I’m not sure if you are physically present in the state, that they’re going to let you change to Texas.

P:  Well, it is kind of funny because he’s out in Fort Benning, and that’s the thing. Go ahead. We’ve got more stuff to cover.

J:  For the car buffs who are going to buy a hybrid vehicle, the full credit for the VW and Audi hybrids runs out on June 30^th. It’s going to be halfway through.

P:  We have a caller on the line. It’s Phillip. He’s got a question on tax rates for insurance. Phillip, go ahead. You’re on the air.

Phillip: My question was for the beneficiaries, for someone who passed away – mother, father – what is normally the tax rate that the beneficiaries get taxed from federal because I’m Texas, so we don’t have a state tax, but I was more worried about the federal.

R:  Typically, Phillip, life insurance comes income tax free in most cases, so there’s no income tax on it. It does come estate tax free in most cases, so if there is tax on it to be paid, normally it’s going to be the estate tax, but typically no income tax with life insurance.

Phillip: Okay. How much is estate tax?

R:  Well, estate tax, it’s only if the estate is large enough for that to be applicable. It’s going to be in the 45% range.4

Phillip: Okay. But Texas is about the 45% range?

R: It has nothing to do with the state. That’s the federal estate tax.

Phillip: Oh, okay. And my other question was – some guys and I at work were talking. If you win the lottery, how much does the federal government take, and is there a way to get them to take less?

J: That is a question that many tax practitioners like to answer. I had a client that won the lottery. That was way back when it first started. They got, basically, a fourth of the face amount of the lottery after taxes because they took the cash option.

Phillip: So, you get basically a fourth?

J:  That’s back then. I think they probably changed it because the interest rates have gone down, which actually increases your after tax take of the lottery proceeds.

R:  There’s an interesting situation that can come up that typically those payouts are made over a 20-year period. If somebody dies during that 20 period, the IRS, those wonderful people, will accelerate the full amount so that its paid all in one year.

That came up when somebody died prior to receiving their third payment. They died between the first and second year after they won, but they had gotten two payments. The IRS accelerated the payment. Then the family has no choice but to turn around basically and make a deal with the IRS to pay it out as they get it.

Well, the way it worked out for that family, the IRS was going to get the next 16 or 17 payments and they were going to get the very last payment, and part of the next to last payment. The rest went to the IRS because of interest on the income tax generated and the estate tax.

J:  For lotto winners, they’ve definitely got to do some planning.

R:  Before they take the proceeds.

J:  Exactly. The planning is all done up ahead. For many of those folks, apparently they lose their money. It’s all spent for a while. So it’s not just income tax planning, but they’ve also got to change the way their appetite for spending is.

R: Right. So what you’re saying is basically it’s always better to take the cash option because you’re going to get the money upfront, you’re just going to get taxed.

J:  As a CPA, that’s what I would do.

R:  Just make sure you reserve enough to pay the tax.

P:  Thanks Phillip, those are great questions. We’re right here on a break. So We’ll be right back with more of Tax Talk this Sunday.

[commercial]

P:  Welcome back to Tax Talk. The more you know, the more you get to keep. When we really talk about that, we’re encouraging you to call in with any tax or estate related question. Anything you would ask of CPA or an attorney, you have the opportunity right now. Jeff Pickering CPA, Masters in Taxation. Rex Hogue, Bolinger & Hogue 17+ years of helping people save money on their estates.

One of the things I always like to do is make sure you guys know these are local guys. Jeff, his office is up at 6433 Preston Rd., Suite 300 in Plano and you can call him (972) 378-5200. Great guys to connect with. I know he does my taxes and I’m so thankful. Really, I was so thankful this year.

And Rex, I know they’re local up in Frisco, Bolinger & Hogue is at 2595 Dallas Parkway in Frisco, Suite 100. You can call them at (972) 309-0104. If you’d like some information about what they do, just leave a message. Jeff, is somebody standing by today?

J: Somebody is there right now if somebody wants to call and make an appointment or if you’re too shy to ask something on the air also, you can call our office and ask it there or email. We’ve got another email address which is Jeff@taxtalkradio.com.

P:  Great. And Rex, they can email you?

R:  Rex@bigtexlaw.com.

P: And also, call in. If you have a question that you would ask a CPA or an attorney, then I would call in today at (214) 787-1570. If you’re outside the DFW area, it’s (800) 583-1570 or #KLIF on your Sprint wireless phone.

Again, we’ve got so much to cover. But, one of the things that our caller just asked about was the lottery; winning the lottery and what are the tax implications. Rex, you had a funny story at the break. I don’t want to miss it. Tell us more.

R:  Well, I was telling you the estate tax implication. There’s a group of local public defenders here in the Dallas area. Several years ago, they went and bought lottery tickets together and ended up winning.

The Dallas Morning News asked one of them the question, “Being lawyers, did y’all do anything different?” And they said, “Well, of course, yeah. We know better than to take it outright.” The only problem is, they’re criminal defense guys. They don’t know anything about this.

J: Oh yeah, just big dogs barking.

R:  So, they didn’t do anything different and about a year and a half later, one of them died. By that time, the initial payment and the first year payment had been made. Well, the IRS hit them. The estate tax was 55%, so that took 11 of the 20 payments just on estate tax.

But, they didn’t have that kind of money to go pay the IRS, so they made a deal with the IRS under the Internal Revenue Code you can pay out the estate tax – I believe it’s 6166 is the code section, but I might be wrong about that. They agreed to an interest schedule that took out payments through year 18 – or through year 17. So, just to pay the estate tax, the IRS got 80% of it.

P: Just because they didn’t plan, which is one of the things that we continue to talk about around here is that if you’ve got a business and you’re not doing estate or tax planning, you’re really missing the boat.

You’ve got two excellent resources right here. You can call in at (214) 787-1570 and ask Jeff or Rex a question about those areas. But also, sitting down with you guys is more than worthwhile. Both of you guys offer at least a 45-minute consultation. Is that about right?

J: That’s right. For people who are interested in starting a business or who have businesses, we’ll do the 45 minutes. It’s important to do it upfront; do it right up front. That’s why we give the free time.

P:  In fact, isn’t that something that we’re looking at, even in the next few years, that if you’re starting a businesses, you’ll probably be a small business in the first few years. I know that there’s a new Medicare tax that’s coming.

J: Yeah. Not only a Medicare tax, the 3.8%, but I’ll mention it now since you brought it up. On May 28^th, the House passed by a vote of 215 to 204, the American Jobs closing Loopholes and Preventing Outsourcing tax Act of 2010.

There’s a provision in there that will tax people who are consultants and have and have an S-corporation. So people who are affected, they’ll get up to a 15% tax on their S-corporation K-1 income if they’re a consultant. If they’re in healthcare – doctors; if they’re an attorney, they’re a lawyer if they’re in performing arts, but a lot of people are in consulting.

This bill has passed the House. It’s now in the Senate. So if you want to complain about it before it gets passed into law, now would be the time to do it. If you’re in Texas, you would call our Senators, Hutchinson and Cornyn, and if you’re listening on the web or in other states, you would call your Senators from those states. But it’s a big tax and they’re just sneaking it in trying to do it fast the way they did with the ObamaCare stuff.

R:  And that’s going to affect regular people too because a lot of those people employ small numbers of people, relatively speaking, but it’s actually a huge number of people and what they’re going to end up doing to pay for that tax is laying off employees because they can’t afford to keep them.

P: Wow. That’s interesting. Let me go to Robert. We’ve got Robert. He’s got a question about life insurance. Robert, go ahead. You’re on the air.

Robert: Yes. I was curious to get your opinion on this second-to-die life insurance policy. Are you familiar with that?

R:  I am. What’s the question?

Robert: I just wanted to get your opinion on really what you thought about it and how it’s tied into my parent’s estate and how the minimum required distribution coming out of their – it’s a 401K; their IRA retirement account.

R:  Okay. What does that have to do with second-to-die insurance?

Robert: Well, I guess, two things. Number one, if that’s the correct way to make the actual premium payment and annual payment, and then also, what you thought about the policy itself.

R:  Well, second-to-die insurance is very useful when a family needs cash at the end of the surviving spouse’s death, for whatever reason. But, of course, every company is different and generally those plans should be in irrevocable trusts so that the life insurance is outside of the taxable estate, but it’s hard to give any opinion other than that.

We believe in insurance. It’s a great tool. Second-to-die insurance can be a great way to generate some life insurance when you need cash on the surviving spouse’s death. But whether it’s good in a particular case, of course, depends on the facts.

Robert: Okay, very good.

J: Alright. Thanks, Robert.

P:  Thank you so much, Robert. Well, I want to go into this case with Legal Zoom.

R: Very interesting case. Robert Shapiro is back in the news. Most people know he was OJ Simpson’s lawyer and he started LegalZoom.com with a couple of other people. Personally, I’m glad that Legal Zoom is out there because they create some huge messes that lawyers like us get to fix and charge a lot of money for; a whole lot more to fix their problems than to do it right to begin with.

J:  That’s right.

R:  Of course, I’m being sarcastic there if you don’t know. But what happened is they advertised that they customize documents, but their customizing is limited to putting in customer’s name and identifying personal information which, I don’t call that customizing. I call that filling in the blanks.

They claim that virtually anyone can create a valid legal document and that it’s reviewed for accuracy and reliability which gives clients or customers a false sense of security.

So, somebody sued Legal Zoom because they created a living trust on Legal Zoom. It apparently didn’t do was it was supposed to do, so they had to go hire a real lawyer to fix the mess it created, and now they’re suing Legal Zoom.

I don’t know whether they should be able to sue Legal Zoom because I’m not real familiar with what their ads say. I see Robert  Shapiro on TV. I think about something else until the show’s back on.

At any rate, it’s an interesting lawsuit because they’re claiming that they help people practice law without a license. If you go tell your friend to go to LegalZoom.com, you could be held liable for practicing law without a license – not real encouraging.

They claim that they’re a fraudulent business practices. It’s hard to say how this suit is going to come out. It just hit the news and it’s really a big deal. A lot of estate planning attorneys are having a lot of fun with this.

P:  Outstanding. Well, I know we’re coming up on a break, so we want to make sure that if you have a question for either Jeff Pickering CPA or Rex Hogue an attorney, then call in at (214) 787-1570.  We’ve got so much more of the show to bring you and we’re going to be talking about things that have to do with the new information sharing that the IRS is being involved with and you don’t want to miss that because you’re going to find out that the next big snooper is actually the IRS. We’ll be right back.

[commercial]

P:  Welcome back to Tax Talk. We’re having a great show here. We’re talking about ways that you can save money on your taxes and reduce them a bit. One of the things that we always have is Jeff Pickering CPA, Masters in Taxation. Rex Hogue, Bolinger & Hogue BigTexLaw.com – Attorneys in the North Texas area.

One of the things that we want to make sure is that you feel welcome to call in to ask your tax question or an estate tax type of question to these two professionals and that you also know that they’re local guys. A lot of people may not realize it, but Jeff is actually just up in Plano and your crossroads up there are?

J:  Legacy and Spring Creek.

P:  Legacy and Spring Creek. You can call him. There’s someone standing by right now (972)378-5200. And that’s just at 6533 Preston Road, Suite 300 in Plano. Rex, y’all are just in Frisco, 2595 Dallas Parkway, Frisco, Texas Suite 100. People can call you at (972) 309-0104. We’re going to talk about it later, but you do have a special booklet, right?

J:  We do. We have a free report we’re giving away this week on heritage trusts.

P:  On the heritage trust. If somebody wanted that, go ahead and just call in. Leave all the information, right?

J:  Leave their name, address, and a phone number and, preferably, an email address and put it in Marilyn’s box. Don’t put it in my box. Put it in Marilyn’s box. She’s the one who handles that for us.

P:  Great. Before we go to the callers here, I want to make sure that we get back to this new level of insecurity the rest of the world has for information with the IRS because they will bet the next big peeper, so to speak. We’ll go to Robert. Robert, you’re on the air. You have a question?

Robert: Yeah. I just caught the tail end of your discussion about the S-corporation.

J:  Yeah, that’s S-corporations that have K-1 income.

Robert: Yeah, I’m sorry. I have an S-corp with K-1 income.

J:  Okay. Then you would be the subject of this tax that they’re looking at in the Senate. Tomorrow, they’re getting back from break and they’re going to be looking at this bill that was already passed in the House. Now it’s in the Senate, so if they approve it, then it goes to Joint Committee, and then signed by the President.

Robert: What exactly is it going to tax? Is going to tax all your income?

J:  It’s going to tax the income that appears on your K-1. So, take a look at your K-1 and just assume that whatever’s there will be subject to self-employment taxes, which are 15.3%.

Robert: Was that on a pass-through basis?

J:  That’s right; the pass-through part of it. It’s a bill that affects you if you’re in consulting, if you’re in healthcare, engineering, law, accounting, lobbying, architecture, performing arts, athletics, investment advice, management, brokerage services.

But, I can tell you, most of my clients who have S-corporations they’re in consulting or healthcare, so it’s going to be a big one for those. It’s going to his the S-corporations that have three or fewer owners. It’s an unfair tax against small businesses is what it is.

R:  Anti-small business tax.

J:  It’s an anti-small business tax. Since we are a Radioactive Talk Radio station, you would want to contact your Senator, because it’s in the Senate, and tell each of them how you feel about this bill.

Robert: So instead of being taxed as ordinary income on the K-1, it will be taxed with self-employment tax.

J:  That’s right.

Robert: So, that’s the additional tax there.

J:  That’s right, bill.

Robert: That will be pretty big. You’re right.

J:  I encourage you, if you’re a consultant or in healthcare, law – any of those other fields; just consulting as everything – I encourage you to contact your Senator and let them know; Senator Hutchinson and Cornyn.

Robert: I will do that. Thank you.

P: Thanks so much, Robert. Go ahead, Linda. You’ve got a question about your husband’s will.

Linda: Yes. My husband and I had a will drawn up in the state of Tennessee. We are now in the state of Texas and we do not know if it is legal in the state of Texas.

R:  Linda, the chances are good that it is legal. The question is is it going to have the same effect you intended because Texas interprets wills differently than Tennessee does. I would highly recommend that you sit down and talk to a Texas attorney who knows about wills and estate planning because there are some big, big differences between the two states.

Linda: Oh, goodie. [laughs] Okay. Well, thank you very, very much.

J:  The main would be the community versus separate property issues. Is that right, Rex?

R:  That’s one of them, but there’s all kinds of fun things that come up.

P:  Very good. Thanks so much, Linda.

L:  Alright. Thank you.

P: You bet. Well, we want to go ahead and get Scott. Scott, you’ve got a question on your Roth IRA.

Scott: Yes. My question is this. Seven years ago I was with a corporation and I unexpectedly got let go and I started doing contract work. My financial planner said, “Why don’t you consider starting a Roth 401K.” And I did and I was able to shelter a lot more money than you would under a straight Roth, which I had also.

Now, my question is this. I can’t remember the exact form, but the IRS came out in January that I needed to fill out a 5500. That may not be the exact form number.

J:  Yeah. It is a 5500, or a 5500-EZ.

Scott: Okay. Then I got another one probably in the last 30 days that anybody under the plan, which I was the only one, the employee needed to know. Is this something new?

J: No, there’s always been a requirement for 401K plans to file a 5500. Usually, if used an expensive enough broker, they’ll do it for you, but if you’re using a discount guy, then you would want to have an accountant file your 5500-EZ, probably in your case.

Scott: Okay. So, I need to see about him doing it then?

J:  Right.

Scott: Okay. That’s it. Thank you so much.

P:  Thanks again. Well, that was excellent. If you’ve got a question to ask a CPA or an estate tax attorney, then you need to call into (214) 787-1570 or call them direct. Call Jeff at (972) 378-5200; someone is standing by. Or Rex at (972) 309-0104.  If you’re calling in this week, ask about their heritage trust special report.

R:  Special report on heritage trusts, yes.

P:  Special report on heritage trusts. I know that there is a little bit more information. We want to go over this new information sharing that the IRS is involved in.

J:  We are informing our listeners, the commissioner of the IRS has outlined some new information reporting tools. New added to their arsenal are some information. Basically payment by credit cards; those are going to be added to the IRS database.

So, payments by credit card, all those people. We talked about PayPal and the Internet people getting money on the Internet. Credit cards are going to be there, basis reporting. So, your stock cost. Before, you were kind of just coming up with a number. Now, they’re going to have the number because the brokerage companies are going to be required to give the stock basis.

Payments to corporations – that’s a new thing; part of ObamaCare. So, the 1099s, there’s going to be a huge, incredible amount of paperwork of people passing back and forth 1099s to corporations because they used to be exempt from this.

The IRS already does some information sharing. They share information with 29 states; Texas being one of them. They share information with other government agencies; the Department of Education, the FBI – other agencies that need your tax data.

In addition to that, they share information with anybody who’s a treaty member. So, any country that the US has signed a tax treaty with, they have an information sharing program going on.

P:  Outstanding. Well, I know that for a lot of us, all it means is that Big Brother really is looking over you. There’s so much more information we want to cover. I want to make sure that you know about this heritage trust special report. Call in and get that it’s (972) 309-0104. Leave all your information. Right, Rex?

R: Yeah. Leave their name, their address, preferably an email. The easiest way to do this is to go to our website, bigtexlaw.com. Go to ‘Contact Us,’ fill out the form and tell us you want the heritage trust report and we’ll get it to you.

Or if you don’t have access to the web or you don’t have email, call (972) 309-0104 and leave the message in Marilyn’s box. I found out we don’t have a general box, but Marilyn is the appropriate person to leave that information with.

P:  Very good. We’ve got some callers lining up. After the break, we’re going to be talking about the heritage trust and answering your questions on Tax Talk here on Radioactive KLIF.

[commercial]

P: Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of bigtexlaw.com. We’re really having a great show. We’ve got much information that we’ve gone over. We’ve talked about the different loopholes; closing some of those, the 3.8 Medicare tax for S-corps and we’ve got callers on the line.

One of the things I want to make sure is that people know that bigtexlaw.com or Bolinger & Hogue is giving away the Top Ten Reasons Why You Need a Heritage Trust.

R: Basically, we just got a report that explains the three basic ways that you can pas property to your kids; either outright and why we think that’s a bad way through what we call a convenience trust, or a payout trust or, sometimes, a testamentary trust versus the way that we think is the best way to do it, which is through a heritage trust which offers a lot of benefits to the kids.  Our report talks all about it. Maybe we’ll get a chance to cover more of that after we…

P: Answer some questions here. That’s correct.  Well, I know you can just call (972) 309-0104 or go to bigtexlaw.com, ‘Contact Us,’ and fill out the form and you can get that. Excellent. Why don’t we go ahead. We’ve got Ed. You’ve got a question about percent of house payment?

Ed: Yes, good afternoon. My name is Ed and I live in King, Texas. Thank you for accepting my call. I am a land man. I use my home as my home as my primary office. What percentage or what can be deducted as far as my taxes.

J:  Okay, Ed. You’re a land guy.

Ed: Exactly.

J:  Right. You’ve got to be very careful about how you do your taxes because you want to consider all your stuff as investment and not as a trade or business. You call it investment, then you’re talking about capital gains, but if you’re talking about a trade or business, you’re talking about ordinary income with the self-employment tax possibly.

You can take the home office, but the place you take it has got to be consistent with treating your job as an investment, which would be on the Schedule A. So, the normal rules for home office are percentage of your square footage of the office to the total. You multiply that times all costs of keeping your home including mortgage, property taxes, maintenance, repairs; what have you.

Ed: Excellent. I will be making an appointment with you.

J:  We’d be glad to have you.

R:  There’s another thing you can do if you have an entity. You can have the entity actually lease the home. You’ve got to have the proper entity set up. You’ve got to have a lease agreement, but that works even better because it doesn’t show up on your 1040. It shows up on your entity return.

J:  Depending on what kind of entity you have. If you have a flow-through entity, then it will find its way into the right place on your 1040, but if you have separate non flow-through entity, then you’re right; it would stay at the entity level.

Ed: I’ll let you guys work that part out.

[laughter]

Ed: A lot of legal mumbo-jumbo. I can see you guys are very, very, very good.

R:  It does have to do with your audit risk, though. You’re a lot more likely to be audited if it’s on your 1040.

Ed: That’s what I’ve heard.

J:  I’ll go along with that.

P:  Ed, it looks like you need to sit down with both of these guys, so why don’t you do that. Thank so much, Ed. Bonnie, you’re on the air. You’ve got a question?

Bonnie: Yes, thank you. I am an employee for an out-of-state company, but I’m located in my home office. I want to hire hourly help for only about ten hours a week. What do I need to know to provide that worker with a 1099 form so that I can claim the cost as an unreimbursed office expense seeing as I’m not reimbursed for my office expenses from the corporation that I work for?

J:  You have a couple of landmines you’ve got to watch out for. One is, of course, the unreimbursed thing. The other is treating a person that could be an employee as a 1099; the independent contractor versus employee.

I’ll speak to unreimbursed employee business expense. It should be the corporate policy doesn’t reimburse you for these expenses and that they’re ordinary and necessary. So you need to check your employee manual or even get a letter. I say a letter from your supervisor saying, “No, we will not reimburse these. Yes, you may need them, but we’re not going to reimburse them.”

Unless you have that, the IRS is going to say you can’t deduct it because you should’ve gotten it from your employer.

Bonnie: Well, that would be nice if they would provide, but they don’t.

J:  You’ve got to have the documentation to make sure you’re set to do this. The second issue you’ve got is whether or not you have an employee or an independent contractor. There’s an old provision called 529 which you may be able to use.

Or you may just wind up, depending on the facts and the circumstances, you may wind up treating this person as an employee and actually paying their wages.

It’s a little much to get in on a radio show, but if you’d like to make an appointment, I can talk to you or your accountant could.

P:  One of the things I’m curious about is and – again, Bonnie you might sit down with Jeff on this – but the possibility of setting up her own company within what she’s doing just as a different entity.

J:  There is a possibility. That’s an interesting choice. You’d have to do it correctly because what you’re saying is you’re saying that this is an employee business expense that I’m paying my company. I’m paying this company here. You would have to navigate that very carefully too.

P:  Rex, do you have anything?

R: Basically, I’d just reiterate what Jeff just said.

P:  That’s really good.

[laughing]

P:  Thanks again, Bonnie, I hope you sit down with Jeff or Rex. That’s all the callers right now. We’ve got so much more to cover. Real quickly, though, I want to get into this heritage trust thing.

R:  Let’s just talk briefly. You can give assets out right to your kids. A lot of people do that and they don’t realize that there’s actually great danger in that. Then there’s another level you can provide more benefits. It’s actually frequently done; we always do it. That is creating the possibility that it could be left to them in what we call a convenience trust, which if you’ve got a child who isn’t a good money manager, you definitely don’t want to give it to them outright.

If you want to make sure that it remains separate property in case that child goes through a divorce and their ex-spouse doesn’t get what you left for your child. It can also help them avoid guardianship if the child becomes incapacitated. It’ll avoid probate when the child dies. It can even avoid the IRS getting a second bite at the apple for estate tax purposes when the child dies.

As good as that is, the heritage trust actually does some other things that a lot of people want. It provides asset protection where current creditors of a child cannot get to what you leave them, future creditors; if they’re involved in a lawsuit, they’re in a car accident or something – can’t get to it. The spouse not only can’t get it, but it can’t be considered in a divorce. It can stay in the family bloodline.

So if your child dies and their spouse gets remarried, what you left your spouse, your child doesn’t wind up with their replacement. It’s still your grandkids’.

P:  One of the things that I’m noticing is that as we’re wrapping this show up, I want to make sure that people just – it seems like this is so important. Just call you, Rex, and set an appointment so that they can get the right information on this.

Not only can you get the special report, but I know you’ll sit down with folks and really go over what their situation is to make sure that you are taken care of. That’s (972) 309-0104 or visit bigtexlaw.com. Next week is the marriage.

J:  That’s right. If you know somebody that’s getting married, be sure to listen next week. It’s our June wedding show.

P:  It’s going to be a great show. With that, I know we’ve got so much more to cover. We’ll talk to you next week on Tax Talk. This is Pat Dougher.

Transcribed by:
Lainie Lord
www.magiscript.com

Patrick: In fact, not just asset protection. We’re going to give you the ultimate asset protection plan – how to protect your hard-earned assets from financially crippling law suits; angry ex-spouses, vindictive former employees, jealous neighbors, larcenous plaintiffs, frivolous lawsuits, arbitrary and capricious government officials – I know none of you know any of those, right? – greedy partners, and even identity thieves. This is going to be a great show.
Some of the specifics of today – you’re going to see, and learn, and hear how you can determine if you’re at risk, the types of property that may be at risk, five key rules of asset protection and how to apply them, three types of asset protection tools, the three biggest obstacles to good asset protection planning. Yes, we’ve got a great show for you. To introduce our other hosts…
Jeff: Rex has always been on our show from day one, but we’ve never had a really good, proper introduction. Let me try to do this. This is Rex Hogue of Bolinger and Hogue Law Firm in Frisco, Texas. Mr. Hogue did his undergraduate work at Texas Tech and attended a law school at Regent University in Virginia Beach.
He has been practicing for 17 years, is one of the most well-known and well-respected estate planning attorneys in the country. He is a published author. He’s written books for his clients as well as advisors including Practical Estate Planning and Biblical Principles of Estate Planning.
He is a certified continuing education instructor. That’s for accountants, and for insurance people and financial planners. So, without further ado, Rex Hogue. And Rex, before we actually started all this, we were talking about that accident case you had.
Rex: Yes. Kerry was a young lady who inherited $3 million from her parents. She lived in Colorado. She was going through an intersection one day and somebody tried to go around her, clipped her bumper, caused her to veer off and she t-boned a van load of daycare kids. Unfortunately, it killed the driver and two kids.
There’s a huge lawsuit over the accident and the jury came back with a $9.8 million judgment. They determined that the guy who hit Kerry was 90% liable. But, under Colorado law, they found Kerry 10% liable and, under Colorado law, that meant that she had to pay, or that she could pay, for the entire judgment. And while every state law is different, that was devastating because it wiped out what she had inherited from her parents.
Jeff: That sounds severe for what actually happened. How could it have gone then?
Rex: Well, there’s another interesting case. Back in 1969, Ted Kennedy got a little bit too much elbow exercise one night, got drunk and drove of the Chappaquiddick River Bridge. Mary Jo Kopechne was in his car, and she died.
The Kopechne family sued Ted Kennedy for millions of dollars. Unfortunately for them, the only thing they could collect on was his car insurance. So, it raises the question – why is Kerry 10% liable and she loses everything while Ted Kennedy is 100% liable and he lost nothing?
Well, the answer is the way these two families looked at asset protection planning. Kerry’s family wasn’t concerned about it. Ted Kennedy’s was.
Jeff: Right. So, this is something that you can actually read about. You’ve got a special offer. It’s something you offer usually for $99, but this time, you’re letting our listeners for free get this report?
Rex: Yes. It’s a free report, Jeff, on asset protection called The Ultimate Asset Protection Plan. They can reach us by calling 972-309-0104. Leave a message in our general office mailbox. Or they can go to our website, bigtexlaw.com. Go to ‘Contact Us,’ fill out the information and we’ll be happy to send them the report.
Jeff: And in case you don’t know already, we’re talking about The Ultimate Asset Protection Plan. That’s the topic of our show today.
Rex: Yes. And there was another case that we had in our office. One of our clients had a large judgment from Lloyd’s of London. Lloyd’s of London hired Patterson & Braswell, a large Houston law firm, to come after our client and execute on that judgment.
Well, when the client came to see us, they already had a plan in place. It would never have survived the attack, but we upgraded the plan. We were able to add another partner because, fortunately for us, the wife had some separate property that wasn’t subject to the lawsuit that we had to make a gift to the kids in a trust. We used that to give new arguments to the family to protect themselves against the attack.
What ended up happening in the case is Patterson & Braswell went back and told Lloyd’s of London they would not be able to collect on the judgment because of the structure of it.
So, there are success stories out there. It is very possible to structure things in such a way that you will be asset protected in a case like that.
Jeff: Right. You have different levels of protection. In this case, it was what you call taking it from a level two to a level five. It shows the sophistication and the level of planning you have.
Rex: Yes. And even though they didn’t start with what we would consider a very good plan, they had the basics in place for us to add to it without running into a fraudulent transfer, which we’re going to talk about in the next section.
We’re also going to talk a little bit about levels of asset protection. We’re probably not going to get through all of it, but I’m going to tell you that, in our office, we classify it in different ways and, to us, it’s not really asset protection until it reaches what we call level four.
Again, this report is available for our listeners – The Ultimate Asset Protection Plan. We do normally sell it for $99. I probably should accuse you guys of twisting my arm and making us give it away for this particular show.
Jeff: We force you to do something like that. But, it’s a great value at $99, and you can get it for free even now. For our listeners, you’ve got to call Rex’s office at…
Rex: 972-309-0104 or go to our website, bigtexlaw.com. I’m going to take just a minute and plug my partner, Brad Bolinger. Brad is also a CPA, he’s an attorney, he has an LLM which is an advanced law degree in tax. So, we have an enormous amount of credentials when it comes to tax; Brad in particular has a great background in Tax. We practice in the areas of estate planning, asset protection planning, tax planning and business planning.
Jeff: Right. If someone were to come see you, would it cost them a bundle of money or what?
Rex: No. We actually offer a free 45-minute consultation to our listeners, Jeff. We don’t necessarily do that for everybody, but if you’re a listener to the show and you want to come in and discuss your asset protection situation or if you have a plan and you would like for us to review it, we’ll be happy to do that for you at no cost for the first 45 minutes.
Jeff: Great. And where would they do that if they were to come in for the free?
Rex: Our office is at 2595 Dallas Parkway, Suite 100. That’s in Frisco. We’re between Gaylord Parkway, which is just north of us, and 121 which is just to the south. We’re on the west side of the freeway across from the ball park.
Jeff: Right. So, if you would like the report, it’s free. 972-309-0104 or bigtexlaw.com and fill out the form.
Rex: And we’ll be back right after the break.
[commercial]
Patrick: And welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger and Hogue, bigtexlaw.com and we’ve been covering the ultimate asset protection plan for our listeners. You really do want to make sure that you follow through on this. Listen to these tools; these asset protection ideas – ways to protect yourself from the thieves that are out there in this litigious society we’re in. Jeff, I know that you had a question.
Jeff: This always comes up because we always talk about “stuff” as accountants and attorneys. But, we’ve got Kenneth Lay and OJ Simpson. They obviously had some asset protection because they had the cash flow going and they had assets, even though the courts have said that they clearly had done something wrong and had assets taken from them.
Rex: Yes. Ken Lay, of course, lived in Texas which, by the way, is the most debtor-friendly state in the country. He had annuities. They’re not going to be able to get to those annuities. They’re asset protected, so it doesn’t matter how much of a judgment they’re going to get. They’re not going to get to those annuities.
Now, OJ Simpson lived in the worst debtor-friendly state, or the least debtor-friendly sate, in the country – in California. He moved to Florida where they have an unlimited Homestead exemption and they protect annuities and a tool called VEBAs, the Voluntary Employee Benefits plan.
So, while OJ Simpson is hunting down the killers on the golf courses of Florida, the Brown family is not going to be able to take his assets.
Jeff: Right. Yeah, that’s the way it rolls when you have asset protection.
Patrick: Well, it would seem though that even good people – we’re talking about guys that were slugs in the legal system, and they were able to protect themselves. But then, the good people should be able to do something a lot easier.
Rex: Absolutely. In fact, a lot of people can be real misled by these cases because they tend to think, “Hey, I’m not Kenneth Lay. I’m not OJ Simpson. I’m not out there committing crimes, so I don’t have to worry about it.”
But, the fact is most people who are sued never saw it coming. They may be guilty of nothing other than being at the wrong place at the wrong time like Kerry was. Creditors do have rights. When you understand that, creditors have the right to make you play by the rules that were in place at the time the event occurred.
Here’s an example. Let’s suppose you wanted to ship a load of cargo across the ocean. When would you have to insure that load?
Patrick: Front end would be fine.
Rex: Before the ship leaves the dock. Once the ship leaves the dock, it’s too late. It’s a bit late to call Lloyd’s of London after you’ve hit the iceberg. Just like you really can’t buy insurance the day after your house burns down. Asset protection planning has to be in place before the incident occurs that causes the lawsuit.
We get calls from people who were involved in an accident or something has happened. “We might get sued. What can we do to protect ourselves?” We have to tell them, “We can’t help you on that case. We could help you on the next one, but it’s too late for that one.”
We had a really interesting case with a doctor client who we suggested that he do some asset protection planning and he told us, “Yes, I’m going to do it. I’m just going to put it off a few months.” During those few months, one of his employees slipped and fell, hit her head. She has had three brain surgeries. She is 28-years-old. She is disabled for life, and he is going to have to care for her from now on.
One of the things he keeps telling us is, “Y’all told me. I should’ve listened. That should’ve been a priority.” Of course, I don’t take any joy in knowing that we were right. It’s sad. But, it’s sad that it turned out she had a preexisting condition and the accident that he got blamed for probably didn’t even happen at the office.
Patrick: Oh, really? That’s alarming.
Rex: But, we can’t prove it.
Patrick: You’ve got so many tools that you guys actually offer in this Ultimate Asset Protection Plan, right?
Rex: Yeah. We talk a lot about what the rules are. We’re not big on solutions because every single case is different. We can craft solutions once we know the facts, but if you understand the rules of the game, it helps. Let’s just talk about some of those. There are five.
Patrick: Before we do that, let’s make sure the people that have tuned in since the beginning of the hour, maybe recently, that they know how to get a hold of this report.
Rex: Okay. They can call our office, 972-309-0104. Leave a message in our general mailbox. Tell us you want to asset protection report. Give us a phone number and an address. We even prefer email. We can email it and you’ll get it a whole lot faster. Or they can go to our website, www.bigtexlaw.com. Go to the ‘Contact Us’ button and fill out the information, and we’ll send you the report.
Patrick: That’s awesome; really simple. bigtexlaw.com. What’s the phone number again?
Rex: 972-309-0104.
Patrick: Very good. Now, go ahead with your story.
Rex: Okay. Well, there are five key asset protection rules that if you understand these rules and how they work, you will know more about asset protection planning than most lawyers. Rule number one is what we call the property rule. You can always reach property that causes a liability. Rule two: you can always get to the owner of that property. Rule three: you can always get to what the owner owns. Rule four: you can always get to the operator of a property. Rule five: you can always get to what the operator owns.
Jeff, you asked me about people owning lake houses. Eddie and Sally owned a lake house and, one day, a thief broke into that lake house. He left the door ajar when he left. The next door neighbor’s little three-year-old boy came over, wandered through the house, found some fire ant bait and ate it, and it had the same effect on him it had on fire ants. It killed him. Well, who did the neighbors sue?
They sued Eddie and Sally. Why? They own the lake house, and the lake house caused a liability. We can’t go get the thief. Unfortunately, he didn’t leave his name and forwarding address.
Jeff: Rex, I’m going to ask you something real quick. What if the lake house was a rented lake house and there was somebody like a property manager of the lake house?
Rex: Well, there you get into the issue of operator liability as well. A lot of people will have a lake house that they’ll rent. They may or may not protect themselves against people who are injured on the property while they’re renting it.
Here’s the thing. If you just own that lake house in your name and something goes wrong, you will get the lawsuit and anything you have is at risk.
Another example that illustrates the other two rules was the story of Mitch. Mitch was a businessman who the day before his wife’s birthday, he asked his secretary to go to the mall and buy his wife something nice, told her since it’s a personal trip, to take his car. On the way back, she ran over a 45-year-old gentleman out on the bicycle who turned out to be a neurosurgeon who makes a million dollars a year.
Now, we’ve heard about the $250,000 cap on pain and suffering in Texas, but economic damages are excluded from that. And here, the economic damages is 20 years left of practice at a million dollars a year – $20 million of damage.
Now, when a PI lawyer sees a case like this coming, they call this a target-rich environment. Here’s why. They can get to Mitch because it was his car that caused the liability. He owns it. They can get to anything he owns. They’re going to get to the car insurance, but his secretary was operating the car. They can get to her and anything she owns, and her car insurance.
In addition, they may be able to make the argument that this was a business liability because he’s vicariously liable for the acts of his employees, which means if they do something wrong, he has to cover it. So, there’s going to be lots of pockets here that the doctor’s family can go after.
Now, proper planning would help both Eddie and Sally, and Mitch. For example, if Eddie and Sally owned that lake house in an LLC properly structured – that means they’re not the only people involved in it if they’re the only two mom and pop LLC or a single member LLC, not going to be protected. But, they can properly structure it where they may lose the lake house, they may lose the insurance on the lake house, but they don’t lose everything else.
In Mitch’s case, he might have his business protected, his other assets protected, but without some planning, those people are going to be financially devastated by the results of the lawsuit.
Patrick: Wow. And how much of this information is covered in this Ultimate Asset Protection Plan?
Rex: Everything that we’re talking about today is pretty much in this report. I don’t think we mentioned OJ Simpson and Kenneth Lay, but the rest of this information is in there.
Patrick: Very good. For somebody to get a hold of it?
Rex: Go to bigtexlaw.com, go to the ‘Contact Us’ tab, fill out the information or call us at 972-309-0104. Leave a message in our general mailbox and give us your name, address, phone number, email address and we’ll email it to you.
Patrick: Now, if somebody wants to get a hold of you and learn more about what you guys do – I know you guys will sit down for them for 45 minutes.
Rex: Correct. 45 minutes at no cost.
Patrick: And Jeff, you guys do the same?
Jeff: Yes. We do it for people who want to be in business, or want to start a business, or have a business. We give them a free consultation – 45 minutes.
Patrick: Well, I’ll tell you, this is great information. You don’t want to miss a minute of this. We’ll be talking more about the Ultimate Asset Protection Plan coming right up after this.
[commercial]
Patrick: Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger and Hogue, bigtexlaw.com. We’re talking about the ultimate asset protection plan – the one that really takes care of you when the incident occurs after you’ve planned and prepared for it. We’re having a great show. Jeff, I know you had some questions.
Jeff: Yeah. I wanted Rex to explain some of the types of property at risk because one client might get one solution and he might say to his buddy, “Hey, I got this at Bolinger and Hogue,” and then the other client may say, “Well, why didn’t he do that for me?”
Rex: Well, the answer is every situation is unique, every case is different, types of assets are different. We break the types of assets down into what we call Property and Assets – that’s one category. Nest Eggs is a category, and Revenue Streams.
And you may well do something very different for, say, Nest Eggs as opposed to Revenue Streams. You might do the same thing. It depends on the situation and what you’re really trying to protect.
A good example – I’ve got a friend that owns a piece of commercial property, and he came to me and asked me to do an asset protection plan. It’s interesting because it’s an asset, it’s got value right now, it generates revenue, but its primary purpose is his retirement. He’s just trying to get the mortgage paid and all of that, and expects to have that done before he retires. Then the income from it is going to be his retirement plan. So, he’s more interested in protecting a Nest Egg than he is a Property and Asset. That’s a great example.
There are some tools of asset protection. One of the first ones is what we call lines of defense. Lines of defense include things like insurance, exempt property that we’ve talked about; your IRAs, your Homestead.
Patrick: Your VEBAs.
Jeff: Annuities.
Rex: Cash value of life insurance, personal property.
Patrick: Guns.
Rex: Two firearms. Let’s not forget that here in Texas. A second tool is what we call fortifications, and the third tool is what we call strategies. I’m going to go back and just give you some examples.
Lines of defense – insurance is a line of defense. There are three things that can go wrong with insurance. One is you might have a claim that’s not covered by the insurance. Secondly, you might have a claim that exceeds the amount of coverage. And third, your insurance company could go belly-up.
A great example of a line of defense – I like to use the analogy of what happened in France after World War I. The French decided they didn’t enjoy the company of the German Army in their country.
Patrick: Go figure.
Rex: So, they built along the Franco-German border something called the Maginot Line. The idea was that the Germans couldn’t get through and invade Germany. But, we all know history. In the spring of 1940, the Germans invaded France and it took them only three months to overrun the country. Well, the problem wasn’t with the Maginot Line. The problem was the Germans went right around it through Belgium. It’s the classic problem with a line of defense. You can get around it.
The next tool that we use is fortifications. This is where what works for one client won’t work for another because you have to figure out what exactly are you protecting and what are you protecting it from. You really have to look at more than just creditor lawsuits. There are other issues involved.
So, among the things in fortifications – a revocable trust, irrevocable trust, business entities, what we call the family business entities like family limited partnerships and family LLCs. And then asset protection trusts, whether they’re domestic or offshore.
The third tool is strategies. Here’s the key difference between a fortification and a line of defense. You have to get into a fortification. You can’t just go around it. When it gets to strategies, there are several, but I’m going to only talk about one today, and that’s layering.
Part of the objective here is that we like to build a castle for our clients. If we think about a really well-built castle that protects assets, the first thing that we do is we have a very deep, wide moat around the castle. Then we’re going to fill the moat up with fun things like snakes, alligators, crocodiles, piranha, sharks.
Once you want to attack that castle, you first have to get across the moat, then you get to the castle walls and they’re five or six stories high. So, you’ve got to have a way to get from your boat up the walls and scale them. But, then when you get to the top, what’s waiting for you is the defense force.
So, a castle like that is going to be very difficult to take. Compare that to a castle that’s, let’s say, two stories high, sits up on a hill, doesn’t have a lot of people around to protect it, the gate’s usually open, there’s no moat. It’s going to be a whole lot easier to get into that castle and get the stuff out of that castle than the first castle.
Patrick: Awesome. One of the things that I’m noticing just in our notes, I see at least nine different tools of fortification. Now, it looks to me like if somebody was interested in this, they’d want to get your report, wouldn’t they?
Rex: Absolutely. We talk about how all of the tools work. We talk about, for example, that castle is a great example of layering. You’ve got the layer of the moat, the layer of the high walls, the layer of the defense force. There are even other things we can do. For example, put only half the gold in there and build another castle just like it to hold the other half.
Patrick: How would they get the report?
Rex: They can call our office at 972-309-0104 or go to our website, bigtexlaw.com, go to the ‘Contact Us’ tab, fill out the information and we’ll be happy to send the report. By the way, $99 is the cost of the report. It is free to our listeners this week.
Patrick: That really is a big offer too, because you’re going to give them all the things we’ve been talking about in the Ultimate Asset Protection Plan.
Rex: That’s correct.
Patrick: And these strategies and tools of fortification. That’s excellent. What else can we do?
Rex: We see so many different things. Let me give you an example of a case. We have a guy who’s a roofer. I call him Randy the Roofer. Randy had done what he called a family limited partnership.
What happened is Randy had some people out working on a roof, two story roof. I don’t know if you’ve ever seen a roofing hammer, but those things are pretty heavy. One of his roofers dropped a hammer off the roof second story. This homeowner, while they’re redoing the roof, guess what else they’re doing? Putting in a sprinkler system. Unfortunately, the hammer falls off the roof, hits one of the sprinkler guys in the head; luckily, didn’t kill him, but it did cause a closed head injury and a lot of damage.
Well, Randy then discovered – and we actually got into this case because one of the guys who’s of council to our firm represented Randy in the ensuing lawsuit. I can tell you Randy’s attorney did a lot of things wrong.
One thing he did is he had his house owned by this partnership. That is a huge mistake in Texas because he lost his Homestead. The other thing is he was personally the general partner. Well, in a limited partnership, the general partner has general liability. Well, that was him personally.
Jeff: Unlimited, yeah.
Rex: Unlimited. And we asked him, “Why did you do this?” His answer was, “I was trying to protect my assets.” Well, great idea, poor implementation of strategies. Different structure would’ve helped Randy and he could’ve protected his home. He could’ve even conceivably protected his business.
Patrick: Was he doing it himself?
Rex: No, he actually had an attorney do it. One of the scary things is he went to an attorney who has a very good reputation as an estate planner, but he apparently didn’t know very much about asset protection planning. Sadly, that’s not uncommon.
Randy really thought that he was covered. He’s like a lot of people who thought he was covered, so he just didn’t pay attention to what might have happened. Nobody ever said to him, “Well, what about this? What about that?”
Because he was so confident in his LFP, you know what he didn’t have? Enough liability insurance. Liability insurance for Randy would’ve made a huge difference. Instead of him being out of pocket personally, that insurance might well have paid off the claim.
Patrick: One of the things that I’m really curious about – if somebody has already put together some asset protection planning; they’ve got the limited partnership, they’ve got the insurance or something like that, can they come to you guys and ask you about those things?
Rex: Absolutely. We can do an evaluation of their existing plan. One of the things that we’ll do is identify exactly how much asset protection they actually do have, what they have that’s protected. A lot of people worry unnecessarily because they have assets that nobody is going to get.
Patrick: Awesome. One of the things that they need to do is just call your office. 972-209-0104. Jeff, I know you guys do a lot of ideas like this.
Jeff: We do consultations, especially in business. We work with Bolinger and Hogue on many cases.
Patrick: And they’d call?
Jeff: 972-378-5200.
Patrick: Very good. We’ve got more to come. We’ll be right back.
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Patrick: Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger and Hogue, bigtexlaw.com. We’re talking about the ultimate asset protection plan, helping you prepare for, well, the worst really. Wouldn’t you agree, Jeff?
Jeff: Yes, that’s right. In our last segment, Rex was talking about that case where the attorney set up the FLP, the Family Limited Partnership. Unfortunately, he was a great estate planning person, but not so good in the asset protection part. Rex, that’s not your case. You actually practice in three major areas. In addition, you have your partner, which is Brad. Brad Bolinger, he’s also in addition to being an attorney, also having – is it a JD?
Rex: He’s got his JD, which is a law degree. He also has is LLM is tax which is an advanced law degree, and he’s also a CPA. So, he’s got tremendous credentials when it comes to tax. We have a couple of other people, other attorneys in the office.
We have Andy Howard who’s of council to our firm. Then we have Kim Atwell. Both of them have some litigation background. So, we see cases – Kim does a lot of probate work for us. Andy gets involved in some litigation cases. So, we have a great background of attorneys in our area, in our firm. Practice in several areas.
Jeff: Right. You focus on estate as well as asset protection and tax.
Rex: And tax planning. We’re one of the few firms that really practices a lot in all three areas.
Patrick: And you’re well-known in the area, aren’t you? Or even throughout the state?
Rex: Well, yes. We practice all over, so I guess we’re fairly well-know. Let’s talk a little bit about what happened with Randy’s roofing because it goes right into the next segment we want to talk about, and that’s levels of protection.
In our firm, what we look for are tools that provide you asset protection, what we call two-way asset protection. That is a tool that if something goes wrong inside, it protects you personally. Also, a tool that protects you from the outside if you’re involved in a car accident so that you don’t lose the business. Corporations do not provide that kind of protection. LLCs, limited partnerships, asset protection trusts do. In any given case, we may have a mix of those.
But, even having a limited partnership or an LLC is not enough. A lot of times, we see these single-person entities. There is no real protection in those. If you have a single member LLC, which we’ve seen a lot of people, they come in with them and they’ve been told that’s an asset protection tool.
We call those the paper mache dragon. The protection is not real. There are easy ways to get around it if you’re a smart creditor. I tell clients always assume you’re going to be up against a smart creditor.
Jeff: Rex, what’s a charging order?
Rex: A charging order is the exclusive remedy in Texas for limited partnerships and LLCs. What it does – basically, you go get a judgment and then you go and force it against a limited partner, for example. You cannot take that limited partnership interest from them. You can only get what’s called a charging order, and that entitles you to distributions made.
There are some challenges with charging orders. Creditors may be able to get to the entity before they ever get to the charging order. If it’s a single member LLC, there’s no third party interest to protect. The whole idea was that if the three of us go into business together and I get sued, it’s unfair for you all to lose the interest in your business and have a new partner forced on you.
Jeff: Right. That’s the original idea, but that kind of goes out the window when you have a single member LLC.
Rex: Yeah. And it also goes out the window if it’s only husband and wife because, while under the tax law, family attribution is out. It’s not true in litigation. If you can compel the husband’s vote, you can compel the wife’s vote. So, the only way to have one that’s protected is to have more than just the husband and wife, and that gets into what we call the business level.
Patrick: Very good. I know that this is a lot of information. I know a lot of people have just tuned in. Maybe they’re hearing a little bit about this asset protection. They need to get the Ultimate Asset Protection Plan. How do they do that?
Rex: They can call our office at 972-309-0104, leave a message in our general mailbox that they want a free copy of our Ultimate Asset Protection Plan report. It’s normally $99, free to our listeners this week. Or they can go to www.bigtexlaw.com, click on ‘Contact Us’ and we’ll send them an email version of that report.
Patrick: So, they just fill out the form, ask for the Ultimate Asset Plan and you’ll send it to them. That’s a huge, huge offer by the way. I also know that you guys will sit down with people?
Jeff: Yes. We offer a free 45-minute consultation to business owners or somebody who wants to get into business. Rex, you’ll do the same I understand?
Rex: We’ll do the same. For our listeners, we will offer a free 45-minute consultation.
Patrick: And especially if you have some estate planning that you’ve already done, that would be one of the keys, wouldn’t it? I know that there are also, it seems to me there are some things in the way. There are some obstacles. What are some of the obstacles?
Rex: Yes. Well, the three biggest obstacles is, first, you have to have a plan in place before the triggering event occurs, and the triggering event is just that event that gives rise to a lawsuit. Secondly, inadequate, uninformed, or inexperienced legal council.
We’ve seen that in a lot of cases we’ve talked about; Randy, Kerry, Mitch. All of these people, really, they had ineffective or uninformed council. They just didn’t really understand how asset protection works. But, the biggest obstacle by far is procrastination.
Patrick: It’s the biggest nation, it is.
Rex: Yes, it is. Inertia is the hardest thing to overcome. Really, the first step is to call and get our report or go to our website and get the report.
Patrick: Well, there’s so much information in there. Think about all the things that we’ve covered today. You’ve talked about the strategies, you’ve talked about the obstacles, you’ve talked about the different levels and ways that people can protect themselves, some of the easy ways that they can mess it up.
Rex: We’ve talked about all that.
Patrick: All they have to do is?
Rex: Call us at 972-309-0104 or contact us at bigtexlaw.com, go to the ‘Contact Us’ tab, fill out the information and we will send them a free copy of the report.
Patrick: Now, that would mean that they would have to exit the largest nation in the world. That’s the nation of procrastination.
Rex: Procrastination, right – Procrasta.
Patrick: It’s get going, get moving, call you guys and sit down with them. Jeff, how would folks get a hold of you?
Jeff: We’re at 972-378-5200. We’re on Preston Road – 6533 Preston Road between Spring Creek and Legacy in Plano, because there’s two 65333 Preston Roads, believe it or not.
Patrick: And I know that you’re no ordinary CPA either. You’ve got your Masters in Taxation. You can really help folks.
Jeff: Masters in Taxation. A large part of my practice is taxation, and we also service businesses and counsel businesses.
Patrick: Great. Rex, anything else you want to offer before we leave?
Rex: Give us a call. We will sit down and talk to you for free for 45 minutes. For our listeners, that’s an offer we make. Contact us. Get this report. We think it’s great information.
Jeff: It’s great. Even at $99, it’s still a good report. Now it’s free.
Patrick: That’s exactly right. It’s been a great show. You want to make sure that you get a copy of this show. You can always see it at doersucess.com in a few days. We’re so thankful for this time. We will talk to you next week, noon on KLIF.

Pat: And welcome to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bollinger and Hogue in the North Texas area. We’ve got your tax answers. You know a lot of people listen to this show, they get so much information for their business, their personal information as far as how to lower your tax bill. I mean when you really get down to it, the more you know the more you get to keep. That’s what the show is really out to give you and help you with. Jeff you’ve got some deadlines coming up, why don’t we go right into those.

Jeff: Right. So our first deadline is actually a retroactive deadline. We reported that on the 17th if you are a nonprofit, if you’re a small group like a PTA, your gross receipts were under $25,000 a year, then previously you were required to file a Form 990 for Nonprofits. And this year that changed because of a law change back in 2006 and so we were telling people you need to file your extension. And the IRS has told people, you need to file the extension or you need to file your nonprofit form if you’re one of these little bitty nonprofits. And lo and behold, the IRS has recognized that many of them did not get the word and so Doug Shulman, the Commissioner, has said it don’t worry, we’ll figure something out for those of you who didn’t.

Pat: That’s really good. One of the things that I want to make sure is that people know they can call and get their questions answered at 214-787-1570, that’s 214-787-787-1570. If you’re outside the DFW area, it’s 800-583-1570 or #KLIF on your Sprint wireless phone. I know that there’s so much information people can get from us here on this, a lot of people wonder “can I call and with a question that’s not being covered on the air?” Yes. Taxes, estate planning and estate taxes, those are things that come up incidentally sometimes, and so if you’ve got a question, if you got a concern, if you have something that’s changing in your family then you want to call in at 214-787-1570. I know we’ve got more stories from…

Jeff: Sure. And I’d like to remind people on property taxes protests also are coming up, at least here in Collin County, the due date is May 30. Other counties have their own due dates so you might just check it out. If you want to protest your property taxes this is the month to do it in. Okay so we’ve got an American Jobs and Closing the Loopholes Tax Act. So this is an act that is designed to close some loopholes and some other stuff. So this is in Congress right now and it looks like it has some good legs on it, so it looks like many of the provisions are going to, it hasn’t actually passed yet, but it looks like it’s going to. There’s not a lot of discussion about the stuff that’s in this bill. So what we have on the good side, we have a year or more for the research credit, 15 year write-offs for lease hold improvements for restaurant buildings and improvements, the five year write-offs for farm equipment that’s extended. We’ve got the, people were able to deduct charitable contributions from their IRA and that’s saved them money; that’s in there another year. The enhanced deduction for food and book inventories, so that’s out there. On the bad side, let’s talk about the bad side, what loopholes are being closed, there’s a thing called carried interest and people in the real estate and the hedge fund business know what that is because that’s how they get paid usually. They get paid by having a share of the business, instead of getting paid in cash so they are going to close that loophole. Most people were getting their money in capital gains because they had a share of the business. That’s going to go away. Now that carried interest is going to be converted into ordinary income, at least 75% of it is.

Pat: Explain exactly what that would mean, as far as who’s the person, if they are in the real estate business, you’re saying they own a part of something? Clarify that a little bit.

Jeff: Yes. It’s easier to do it in the hedge fund example. So the hedge fund manager gets a bunch of people together and they put their money into this hedge fund. And the guy says okay, I’m going to get compensated based on however much the performance of the hedge fund does. So the hedge fund makes $100 million, the guy gets $15 million. And everybody’s happy because he made $100 million; maybe he started off with $50 million. So, the hedge fund guy gets $15 million as capital gains. Well this law is going to change that so that he is going to have much of that be ordinary income, so he’s going to be taxed at the highest rate.

Pat: Ow.

Jeff: So for people out there who have carried interest, or know what they are, watch out because this is going to change your tax rates dramatically.

Pat: Wow. Are there any safeguards against that or anything anybody can do?

Jeff: You know so far, it took a long time for these people to come up with the idea of carried interest, so I don’t see any…

Pat: The longer it boils the worse it gets.

Jeff: Yeah. I don’t see any on the horizon as a solution. But eventually some people will. Usually what happens is they pass a law and then the loophole closes and eventually we mull over it for long enough we figure something out. So that’s going to close the carried interest loophole and then there is a new tax on S corporations engaged in professional service business.

Pat: That’s going to affect all three of us.

Jeff: Hey that’s right, that’s going to affect all three of us. So this is a tax, it’s like a Medicare and Social Security tax on business. There are two types of S corporations. One is based on the skill and reputation of three or fewer individuals, so that’s one kind of S corporation that’s being taxed, and then an S corporation where there is a partner who is a partner in a professional service. It also closes a loophole for professional services that have limited liability corporations or limited partnerships. So for many people, that was just a strategy for professional service businesses. It was just a normal everyday meat and potatoes tax strategy. People with S corporations, they probably are doing this. So this is going to close…

Pat: Now what does it do, like, when I’m sitting here and thinking about speakers that I know, financial planners that I know, people that have structured their business with an S Corp.

Jeff: Right.

Pat: How is it going to affect them directly?

Jeff: Well, it depends on how they define, I mean this is the language; it says it’s a professional service business. So we have a question, how are they going to define professional service business? We don’t know that yet. The skill and reputation, what is that? We don’t know that one yet either so when it really comes down to what the wording to this is.

Pat: That’s good. I tell you, if you want to join the conversation today it’s 214-787-1570, 214-787-1570 or 800-583-1570 if you’re outside the DFW area, #1570 if you’re on your Sprint wireless phone. This is Tax Talk. We’ve got the answers to your tax questions. We’ll be right back.

Pat: Welcome to tax talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue attorney in the North Texas area with Bollinger and Hogue. If you’ve got questions about estate taxes, estate planning, taxes in general, your business taxes, anything that is really holding you back from knowing the right information, because we do believe that the more you know the more you get to keep. Just call in, it is 214-787-1570, 214-787-1570. And I know that many of you might not know that these guys are local. Jeff is out of the Plano area at 6533 Preston Rd. Suite 300. You can contact his office, and actually, there’s somebody standing by now at 972-378-5200, that’s 972-378-5200. I would encourage you to call and here’s the reason – They have agreed to offer a 45 minute consultation with anybody that calls in this week. And a lot of people might think “well taxes are done.” No, you know what? Here’s the thing you need to remember, tax planning can save you tons. Tax kind of cleanup from last year is really difficult if you didn’t plan for it. I know Rex and Brad have offered the same thing. You call their office at 972-309-0104, that’s 972-309-0104. They are up in Frisco at 2595 Dallas Pkwy. Suite 100 at Bollinger and Hogue. The crossroads there are Gaylord, between Gaylord and 121 and they can call you this week, connect with you and set up an appointment so they can really go over some of their tax implications and find out exactly what other ways you can help them prepare for the tax tsunami that is coming. Wouldn’t you agree?

Rex: Yes.

Pat: I know we wanted to clarify something on this tax, that loophole…

Jeff: It’s the Closing Loophole Act. And also want to remind our listeners that our consultations are for people who have a business, or interested in starting a business, it’s a free 45 minute consultation. So we were talking before the break, we were talking about the American Jobs and Closing the Loopholes Tax Act. We were talking about specifically the loophole they are closing, which is a very popular loophole for people who have small businesses, that’s on the S corporations. So this is a reminder for S corporations, you get your money in two ways. One is through wages and the other is through the residual ownership of the S corporation, which doesn’t have Social Security or Medicare. It’s the passive part of your S corporation. So what this act is going to do, this Closing Tax Loophole Act, is going to tax the people who previously were not paying Social Security or Medicare on the stuff flowing through.

Pat: Oh, that’s going to cost a lot of people a lot of money..

Jeff: Oh it will.

Rex: It’s going to cost people jobs too.

Jeff: It probably will.

Rex: Because people like me, if we have to pay that kind of tax on distributions, the bottom line is there’s just less money there to hire other people.

Pat: That’s right. And the number of people that have just a small S corporation professional services, that’s a huge part of the population. That’s really good. We’ve got a caller. Let me go to Jerry. Jerry, you’re on the air, you have a question about Social Security?

Jerry: Yes I do. I know that a person can end up paying up to 85% on their income from Social Security. My question is, is there a difference between the income that a person has from a job that’s impacted to that, or is there a difference for income that they are getting from a pension?

Jeff: It’s basically for the purposes of Social Security it’s a modified AGI computation and they are both considered the same under that particular computation.

Jerry: Okay, can I ask you a second question?

Jeff: Sure.

Jerry: Okay, I work as a retiree in the Texas Municipal Retirement System in the state of Texas, in a city that withdrew from Social Security in 1983. I understand because of the windfall profit elimination that I would not receive full income from Social Security, but I get my statement showing that I’m going to get “x” number of dollars per month. And actually, I’ve been told that it’s going to be about 25% of that. Are you familiar with this?

Jeff: It sounds like the same kind of thing that the Texas teachers are getting.

Jerry: Yes.

Jeff: So it’s the same issue really.

Jerry: At one time there was something that was a loophole that closed that for us as municipal employees was the same thing that impacted the teachers.

Jeff: Yes, that’s right.

Jerry: All right, well you’ve answered my questions.

Pat: Thank you so much Jerry. And again if you’ve got a question 214-787-1570, 214-787-1570 I would encourage you to take advantage of this opportunity. And the reason I say that is look at Jeff Pickering CPA, Masters in taxation. One of the things that Jeff is really noted for is helping people reduce their IRS visibility for audits because he pretty much fills out the applications and forms in a way that makes you, I don’t want to say audit proof, but you are really prepared. And then I know Rex and Brad, I know Brad has a background as a CPA as well, but it really has to do with estate taxes and estate planning.

Rex: He’s also got a Masters in tax, an LLM degree which is an advanced law degree. So Brad’s really got some amazing credentials when it comes to tax.

Pat: And Brad’s your partner at Bollinger and Hogue. Again, I would just encourage you to take advantage of the opportunity you have here to call in at 214-787-1570 and get some answers to the questions you might have. Now, at this point I know we wanted to cover guardianship and probate. And I know that a lot of people, probate and death, all of that is just one of those topics we tend to avoid. But when it comes to guardianship or probate, clear up the confusion for us Rex.

Rex: Well guardianship is the court supervised management of assets for somebody who has become incapacitated, while probate is the court supervised transfer of assets for somebody who has died. So guardianship, another way to think of that is a living probate. And that’s while you’re alive.

Pat: Right.

Rex: and here’s the reason they exist; what you have is a person that has assets in their own name and they either become incapacitated or they die. If you own assets in your own name, you are on your way to probate court because at some point they’re going to need your signature and you’re not going to be able to give it. You’re either going to be incapacitated, you’re going to be dead, or you’re going to have disappeared. So when we run into that, we have to go to court and get a judge to basically provide a substitute signature. And that’s really why we have probate and guardianship and we tell people that guardianship is one of those 12 step programs and we all know what 12 step programs are like. Nobody wants to be in one. I’m just going into take off the 12 steps of guardianship right quick. step one, hire an attorney; step two, file an application; step three, give notice to interested parties; step four, the court appoints what’s called an attorney ad litem; step five, the petitioner obtains a doctor’s report; step six, the attorney ad litem either adopts that report or they go get their own; step seven, the petitioner obtains a social study; step eight, the attorney ad litem either adopts that social study or gets their own; step nine, you go to a hearing (several things happen at that hearing); step 10, you have an order approving the Guardian that the Court appoints; step 11, the Guardian gathers asset and files a guardianship inventory; and step 12, the judge signs the order approving the inventory and then you have guardianship in place. Now…

Pat: Hold on one second. I am sure that for those of us that have not taken Ron White’s memory course, I would encourage you to contact Rex and, actually you could probably get a copy of that somehow, that information.

Rex: Yes.

Pat: Okay. Is it in a report or something?

Rex: Yes we are offering a report this week, our Family Estate Planning Report, What Everyone Should Know about Effective Planning for Incapacitation or Death.

Pat: Very good. Well I want to take this next call, Eric, real quick and just get your question and then we’ll be going to break right after. So, Eric, you’ve got a IRA Roth question?

Eric: Yes. If you roll over a traditional IRA in 2010 to a Roth IRA, do the Roth conversion, and you spread your tax out over 2010 and 2011, if you rollover another, or do another conversion in 2011 at much higher tax rates or lower tax rates next year, is the portion that’s converted next year treated on its own tax basis and do you add whatever tax you are spreading from 2010 to 2011, is that the way that works?

Jeff: Yes, so Eric actually it’s into 2011 and 2012. So you convert this year 2010 and you pay the taxes in 2011 and 2012. Now you can do multiple year conversion and each of those will just tack on to whatever you’re doing that year.

Pat: Eric can you hang on for the break here? Or do you want to just listen to the answer afterwards?

Eric: Yeah I could hang on because I think I have another question based on what you just said.

Pat: Very good. Well, I want to thank you guys for listening to Tax Talk and the next half of the show is going to be more about guardianship and probate and your tax questions at 214-787-1570 here on Tax Talk.

Pat: And welcome back to Tax Talk. This is Pat Dougher. We have a great show going. We’ve been talking about taxes that you feel, loopholes that are closing in the near future and how it’s going to impact you. We’re also covering things that have to do with guardianship and probate and answering your questions on the air. If you want to join us at 214-787-1570, 214-787-1570 to connect with Jeff Pickering CPA, Masters in taxation, Rex Hogue, attorney-at-law with Bollinger and Hogue. And Eric, you are on the air and you had more questions about the Roth IRA conversion?

Eric: Yes. If I convert in 2010 and I have very low income in 2010, and that tax is not due until, it’s spread out until 2011 and 2012, is the value of the tax set this year and is added to any supplemental or subsequent Roth conversions or do I get the tax assigned to the year in which its due, in other words in 2012, if I have a lot higher in count is it taxed higher then?

Jeff: The tax is the thing that you pay in 2011 and 2012. So it will be set. We were talking about that in the break, we were saying dealing with the devil that you know is better than dealing with some unknown future tax devil. So that’s a good reason for doing it and getting it done in 2010.

Eric: Do I have the option of paying it in 2010 or in spreading it out?

Jeff: Over 2011 and 2012. So that’s a strategy that people do, they do multiyear conversions. In order to do a multiyear conversion, it takes more planning, but you should be able also to save more money.

Eric: Alright. If you have more income in 2012, then how is that going to save more money?

Jeff: Well, that’s where the planning comes in. That’s something you have to map out and see if it’s actually going to work for you.

Pat: Well, one of the things I would encourage Eric, sit down with Jeff and do some planning. It‘s 972-378-52002 to get with Jeff and you might do that. Anything else?

Eric: One other one. If I have one IRA and I only want to convert a portion of it in 2010, because I think that’s the amount of tax I could pay, then can I convert another 15% of that IRA in 2011 and continue to do multiple conversions?

Jeff: Yes.

Eric: Whatever tax is due that year…

Jeff: Yes. You’ll be able to do it that way.

Eric: Okay. Thanks a lot.

Pat: I’ve got another caller on the air. It’s Robert, you’ve got a question about Texas Tomorrow Plan?

Robert: Yes sir. I appreciate you taking my call. In 1996 I bought a four year Texas Tomorrow fund it’s going to be coming up, she’ll be going to college about this time next year. What are the tax implications on that?

Jeff: Well, you’ll take the money out and use it for tuition, room and board and none of the income will be taxable to you. So, I can tell you that my clients that have had the Texas Tomorrow Fund have been very happy with it. I think it’s a great program and I think you’ll probably be happy with the results as well.

Robert: So we’re making sure we’re talking about the same one, this is the one that was back in ‘96 it wasn’t the one that is current.

Jeff: The prepaid tuition one, right?

Robert: Right, you buy four years and so I paid that money out so there’s no tax implications at all?

Jeff: There’s no tax implications on it at all. Actually for that one, the money is just used for tuition and you are even Steven.

Robert: Wow, okay then. Thank you.

Pat: Thanks Robert. Well, that was excellent. If you’ve got some tax questions that you need answers for, just call into 214-787-1570, 214-787-1570. Let’s go back to guardianship and probate, Rex?.

Rex: Well, once you put the guardianship in place, people think “Now we’re done.” But actually, I tell people that’s really the beginning of troubles because on an ongoing basis, the Guardian has to manage the assets according to the Texas probate court and what that means is, you can’t have investments that aren’t government-backed securities. Well, that can really foul up your investment planning, because you may not be able to invest in things that can earn as much money. And right now, with CDs paying 3%, 3.50%, something like that, people can see income seriously go down. Another thing that I don’t like is court requirements, such as having to go to a hearing to be able to do a garage sale. Everything is controlled by the court. And on an ongoing basis you also have to have a social study and doctors reports, and a hearing every year, do an accounting every year. So it’s a very expensive process. We find the more that we tell people about it, the less they are interested in doing it. And you have cases where people think may be a power of attorney will avoid it. Actually, it may not. We had a client one time who signed a power of attorney and then decided to rearrange his brains with a .38. Fortunately he did not die. But he wound up a vegetable. Nobody would take the power of attorney because they said the guy’s mental capacity when he did it, they questioned that, kind of a reasonable question if the guy shoots himself three days after…

Pat: Yeah, it was kind of a planned thing. Well one question, just for people that joined us since the last time you gave a definition, guardianship is for the living, probate is for the deceased?

Rex: Correct. Guardianship is what happens while you’re alive, probate is what happens after you die.

Pat: Okay

Rex: So probate, in Texas, a lot of people have said they’ve heard of probate is pretty easy and generally that is true, but there are exceptions. We find in our office, and we do a lot of probate, probably about half the time probate is generally not bad at all. In about half the cases it’s more complicated than people anticipated. Probably 10 or 15 maybe 20% of the time it turns into an out and out nightmare for the family. There’s all kinds of things that come up in probate, there are a lot of legal requirements, you have to notify people, just a lot of opportunities for things to go wrong. It’s a very complex process, that normally, things go through the system without too much difficulty, but when things go wrong it can be a nightmare.

Pat: Now is there anything that, like any guidance as far as…I would imagine that the more problems show up with the more assets that you have. Is that a factor?

Rex: That’s a factor. A complicated family situation is a factor. Second marriages…

Pat: Estranged or something?

Rex: Or the couple has the yours, mine, and ours kids. The Brady Bunch. That gets more complicated because you’ve got multiple issues that quite frequently have not been planned for. And so they get settled in probate and that could turn into World War III unfortunately. There is a great book that we use that provides a lot of information. I don’t know if it’s still available, but it’s called How to Live and Die: Texas Probate. It was put out by the Texas Bar Association a few years ago. And we’ve been using the things in that book for years, even though the requirements have changed, we now have greater notice requirements, greater accountability in the process for executors and administrators. But in Texas, we have several different probate procedures for some of them, they’ve tried to make them as simplified as possible, which is a good thing. By the way, I’ll also make a little plug for probate judges. They generally are very kind to the people who are in their courtrooms; they try not to make the process more stressful. So when we talk about problems in probate, we’re really not talking about mean and nasty judges, were talking about a system that’s just difficult to administer. And there’s no easy way around that. There is a chart that we have, I showed it to you little while ago, really two of them. One of them we call the “estate settlement cross funnel.” And if you think of everything that you have is basically going through this funnel, there are three types of expenses that come out of it. There is administrative expenses; you’re always going to have those. Unfortunately you don’t get to die for free. They don’t charge you, they charge your family. But administrative expenses, and then there is estate taxes. Probate and estate taxes are 100% voluntary taxes. And the last thing that I will tell you is who gets paid first at probate. There are 11 people in line in front of your family when you go through probate.

Pat: 11 people. Okay, well I know that you can get that information by calling 972-309-0104 and request, what’s that report called?

Rex: The Family Estate Planning Report, and please leave it in our general mailbox.

Pat: And leave everything, especially a phone number and say it a couple of times because electronics will mess anything up. Anyways, we are coming up on the next break. It’s 214-787-1570. One more opportunity for you to get your tax questions answered here on Tax Talk.

Pat: And welcome back to Tax Talk. This is Pat Dougher. We’ve got a great show going. We’ve got several questions about Roth IRA conversions, which I know a lot of people are looking at and evaluating if that’s a potential for them and then also we’ve been talking about guardianship versus probate with Rex on some of the ways that Texas is a more friendly state than most but there are some obstacles to hurdle over, so to speak. We’ve had a number of calls and I just encourage you, if you want to get in you’ve got about nine minutes 214-787-1570, 214-787-1570. And Rex, you had a couple of other things you wanted to add on the…

Rex: Yes. We’ve been just discussing what these two procedures are, guardianship while you’re alive, probate after you are dead. And here’s the thing I want people to get about this, Guardianship and probate are not problems. They are the solution to a problem. The problem is you need a person’s signature and you can’t provide it anymore because they are either incapacitated or they are dead, or they have disappeared. Probate and guardianship are the solutions when they haven’t done other planning to create a better solution.

Pat: Right, and that’s what you guys specialize in.

Rex: Yes.

Pat: So connect with Bollinger and Hogue. Their website is easy to get to Bigtexlaw.com, that’s just bigtexlaw.com and then also in order to connect with Jeff Pickering his website is PickeringCPA.com, that’s PickeringCPA.com. And I want to make sure that we go back to talking about the Roth IRA conversion, a lot of people are looking at that right now.

Jeff: Yes they are very popular. There are so many reasons that you should do it. The old way to look at it was, if you know the tax rate is going in and going out then a Roth and a Regular would be the same. But that’s not really true. You know you’re dealing with a shifting environment of tax law and probable increases in tax rates and also one of the best reasons I can think of to do a Roth is give yourself options. If you’ve got options, if you want to have all your money tax-free one year, if you want to go buy a lake house you can take all that money out of your Roth and you won’t bump yourself into a higher tax bracket.

Pat: One of the things that, just for the general listening audience, they’ve probably heard the term Roth IRA conversion. What is a Roth IRA conversion? What’s the difference in the benefit?

Jeff: So, is normally you wouldn’t be able to do the Roth conversion, convert your money from a regular IRA to a Roth because there was a $100,000 adjusted gross income limit. If you made over $100,000 you can do it, but they got rid of that rule for 2010 and beyond and there is also another special rule that says you can pay the taxes on that conversion and in 2011 and 2012. So that makes it, and in the face of increasing taxes which is what we need to pay for all this deficit spending, it looks attractive for people to do the conversion. When you look at what a conversion is, you shouldn’t just go out and do it though; you’ve got to look at the tax impact. You should look and see what is the most sensible way and how much to do it. You’ll want to figure the effect on your Social Security, Medicare, like our first caller he mentioned that he was talking about the 85% Social Security. A conversion would cause your Social Security to be taxable. You’ve got to look at if you’ve got company stock in a 401(k), you want to leave that there; you don’t want to convert that because it’s net unrealized appreciation and there’s a special tax benefit of leaving that there. Your beneficiary designations, those are all things you need to look at when doing a conversion.

Pat: So it sounds like somebody could get some good benefit from sitting down with someone like you to do some planning.

Jeff: Planning is the thing. Planning is key.

Rex: Yeah and the Roth, what it basically does is, it’s an IRA that is not subject to income tax as the money comes out. Just in case people don’t know that.

Jeff: Yes thank you Rex, sometimes I assume too much.

Pat: I’m not in y’alls industries but if you’ve got an IRA now, you can essentially pay the tax on the money that they have and then you’ll never be taxed on that money again, even with growth. That’s pretty cool. But it’s again, sitting down with Jeff and doing some tax planning, it would make all the difference in the world. They can call you at 972-378-5200, 972-378-5200 up in Plano; you need to go visit with them. Again with Rex and Bollinger and Hogue it’s 972-309-0104. Anything else?

Jeff: Well, that’s it. We were talking about loopholes, and I’d like to continue on a little about loopholes. One of the loopholes we were talking about is we have a hiring your children to work in the family business can be a loophole.

Pat: Ah, child labor (laughing).

Jeff: Child labor. Make them work for it (laughing).

Rex: Tax while you’re still not refer to those as loopholes. They are legitimate tax strategies.

Jeff: They are legitimate tax strategies. But, they’ve been on the take for so long, the kids, you need to get them to work around the office and pay them, and you could do some income shifting, they call that income shifting, that’s the legal name for it. If they are working in your sole proprietorship then you don’t have to pay Social Security and Medicare if they are 18 under and you could also, for some of my clients, they have some of their kids working and they give them an IRA. So the kid as a teenager in these already have an IRA and it’s an incredible idea, once that kid is retirement age.

Pat: So it’s just basically planting a good seed for them.

Jeff: Exactly.

Rex: And you might point out that they can be an amount up to $5700 per year per child, tax-free.

Jeff: Right, but if you add the IRA on top of it.

Pat: That’s great. Well I really encourage you guys to connect with Jeff Pickering or Rex Hogue with their offer this week of a 45 minute consultation about your business or your enterprise and your estate. To get a hold of Jeff, it’s 972-378-5200, it’s 972-378-5200 and with Rex it’s 972-309-0104. Rex is giving away a special report in its called…

Rex: Family Estate Planning Report.

Pat: Family Estate Planning Report. Thanks for this week and you can always catch the show at PatDougher.com or doersuccess.com. Talk to you next week.

Patrick: And welcome to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue Bolinger and Hogue Attorneys in the North Texas area giving you answers to your tax questions.
One of the things that we say on this show is the more you know, the more you get to keep. And that’s paramount. The reason you want to listen to this show is that there is a – and I hate to sound like Chicken Little – but there is a coming tax tsunami. And the more you know, the more you get to keep. Jeff, thanks for being on the show. Rex, you too. And Jeff, I know we’ve got a couple of deadlines, but we’re almost out of those.
Jeff: That’s right. We’re coming up on the deadlines. So, this is one of those rules about taxes you always have to remember is that whenever a deadline falls on the weekend, you have until the next business day.
So, we got a couple of deadlines coming up. One’s a very obvious deadline which is the Texas franchise taxes for the calendar year. Texas franchise tax returns are due tomorrow because the 15th fell on a Saturday, and if you owe franchise taxes, you should probably pay them. Even if you filed an extension, you should still pay the franchise taxes.
Our next deadline – it’s the last day for people who were previously exempt from filing 990s. 990s are for the tax exempt organizations. So, this is a surprise deadline because it’s kind of a new thing that’s happening due to a 2006 tax law change.
So, if you are a treasurer of a garden club, or a PTA, or something like that and you’ve never really have been familiar with your filing requirement, tomorrow would be the day to become very familiar, because you’re going to lose your tax exempt status if you don’t file by tomorrow, if you haven’t been filing.
Previously, there was this rule where you didn’t have to file if your gross was under 25,000 for non-church organizations. In 2006, that rule went away and they gave people a three year time period to file. So now, that three years is winding up, so tomorrow would be your deadline to file your 990. And if you can’t file your 990, you should file an extension; that’s an 8868. Get that done; otherwise you may lose your tax exempt status and turn into a pumpkin.
Rex: Turn into a pumpkin. Yeah. It comes at a weird time of the year because we ‘re talking a lot of high school booster clubs; that kind of thing. And this isn’t the time of the year that they’re likely thinking about this, but they need to be thinking about it.
Jeff: Right. This is a bad law. It’s a law designed to catch those greedy treasurers of PTAs and Booster clubs.
Rex: And the local community theater
Jeff: And the local community theater.
Rex: I think I know of one of those.
Patrick: You know, one of the things I was really surprised at is that in some of the information you were providing for today’s show is Texas does okay at using the tax that we collect
Jeff: That’s absolutely true. Texas, we’re broadcasting from Texas, you may be listening on the Internet and catch us in other states. But, Texas, as a percentage of receipts, we have the lowest tax burden.
The Tax Foundation did a study of all the states. What they did is they did a tax burden as a percentage of state income, and we’re number 43. What does that actually mean; tax burden as a percentage of state income?
It’s what you pay divided by what the government actually uses. And if it’s low, that means the state is efficient at carrying out their duties.
Patrick: Well, that’s a good thing though. You want companies, or you want a business that’s fiscally responsible, or more so with what you give them. It sounds like we’re doing better than most.
Jeff: Right. If you were to look at this map published by the foundation, you would see many of the states are, as Rex actually pointed out, that many of the states are actually Republican states. Many of the worst, the high tax inefficient sates – or maybe they offer a lot more; I don’t know – they are the ones that are usually Democrat. It’s funny; I notice that New Hampshire is all by itself in a pool of other high tax states.
Rex: We might point out that New Hampshire is the only Republican state up there, and it’s actually on a list of 11 of the most efficient
Jeff: That’s right.
Patrick: That’s good. Well, I know I saw something earlier this week about the percentage of debt to GDP of the countries in the world. They were looking at Greece and they were saying who’s next to maybe go through the eye of the needle like Greece is kind of going right now.
And they were saying that England and America were like second and third on the list, but Australia was the best of the bunch. Switzerland and Australia were the better ones. They had like 20% versus our…Way up there.
Jeff: Yeah. If you were to look at a map or a graph of our spending, it will shock you. I saw one and I thought, “Whoa.” I know now what they’re talking about
So, we’ve got that, and we’ve got another story about Southwest. Southwest, their home is here in [6:20 inaudible]
Rex: Southwest Airlines.
Jeff: That’s right; Southwest Airlines. They’re saying we don’t need no stinking bribes.
Patrick: Now, tell me about that. I love when somebody cocks an attitude like that and says…
Jeff: “We don’t need no stinking bribes.” Okay, so Southwest was going into Charleston, South Carolina. Some of these cities try to give them money, corporate welfare, to come to their cities basically.
So, Charleston offered up a 5% tax on cabs, on taxis, to pay for, basically, a bribe for Southwest to come there. And Southwest west said, “No. We don’t need the bribe. We’ll come there anyway.”
Patrick: Very good. Good for Southwest
Rex: We would like to expand our business to another market. What a concept.
Patrick: What a novel idea, right?
Jeff: And speaking of travel, there’s a proposed tax for carry-on bag fees. There’s an excise tax on travel, on airlines specifically, and it’s a 7.5% tax on the ticket. What happens is they say that the bags are not actually part of your ticket.
So, that’s not taxed, but these Senators, most of them, actually, happen to be Democratic are proposing a tax on the bags themselves.
Patrick: Is it going to be cheaper just to send our bags through UPS or FedEx than fly with them?
Jeff: You know, it may come to that
Rex: They’re probably going to tax that too.
Jeff: They’ll tax that too.
Rex: Sadly, the airline ticket prices have maybe gone down a little bit, and they’ve made up for the revenue by charging for the bags. Now, the Senators are going to propose taxing the bag with the idea that the airlines are going to pay it.
Jeff: Right.
Rex: Yeah right. No, it’s going to get passed onto us.
Patrick: Pass it through. The trickle down thing works everywhere, doesn’t it? Well, one of the things we want you to do is call in. If you’ve got questions about anything that has to do with your company as far as its taxing, paying taxes, setting its self up.
In fact, one of the things we want to get to after the break is we want to get to what are the keys Rex and Jeff can give you that will reduce your taxes and increase your profits in your company in the next few years.
I know that a lot of people are really curious about how to maximize their spending and their expenses. So, 214-787-1570 if you want to join the conversation, or if you’re outside the DFW area its 800-583-1570 or #KLIF on your Sprint wireless phone. We’ll be right back.
[commercial]
Patrick: Welcome back to Tax Talk. Patrick Dougher, Rex Hogue, Jeff Pickering CPA, and we’re answering your tax questions. We’re giving you good information about how to reduce your tax bill, increase your profits, and then even pass things down a little bit easier so that you don’t pay as much in taxes.
I know one of the things that will be coming up on the show is the ix bullets your simple will does not protect your estate from, and then also the three keys to increasing your profits and reducing your tax burden.
One of the things that I want to always make sure is that you know that Jeff Pickering is a CPA in the Plano area. He’s a local guy. He’s up there at 6533 Preston Road, Suite 300 in Plano. His phone number is 972-378-5200.
Rex is with Bolinger & Hogue, and you can get them at BigTexLaw.com. That’s probably the easiest way, just BigTexLaw.com. They are in the Frisco area at 2595 Dallas Parkway. You can connect with them at 972-309-0104. And if you do call there, leave your name and number and be real clear about your number, because that’s the way that they can always confirm if you’re requesting a special report.
I know that Rex will be giving one of his special reports, as usual, today that will help you, and you’ll want to sign up for that. You’ll want to get that so that you can keep yourself informed. Remember, the more you know, the more you get to keep.
We’re going to go right to our caller before we get too far into this quarter. Ma’am, you’re on the air. You have a unique situation, so I’m going to keep your privacy your way. Go ahead.
Caller: I’ve had some health challenges. I’ve pretty much been bedridden for close to ten years. I found some tax returns, I think it’s 2001 or ’02; maybe 2003. And what I’m concerned about, I want to get things caught up because, other than I think 2005, I haven’t made any money because I haven’t worked. I do have some rental income coming in, and I did sell these properties, so I know some triggers are going to be coming off.
So, I don’t know who to call to find out. I don’t have any records, and I don’t know how to find out how to get caught up and what to do because I don’t have any receipts or records or anything. So, I need to talk to the IRS to get whatever W-2s and that sort of thing.
Jeff: It’s not such an unfamiliar situation. What we usually do when somebody needs to file and they don’t have their information is we have them come into the office and they sign a power of attorney, then we ask the IRS what they have. We just contact them on our client’s behalf. We ask what kind of documents do you have, because we’re trying to file for this person who hasn’t filed. They’re happy to give it to us.
The other thing you probably have working for you is that you’ve got to come up with a way to file. If you’re missing information, you have to come up with some way that’s reasonable and unbiased to put your information out there.
Most of the time, when I work with the IRS in audit situations, if there is documentation missing, if you come up with an unbiased way to get to a reasonable estimate of what the tax liability is, then they’ll recognize that and usually they’ll accept that.
Caller: When I was filing, I was filing in Colorado because my home’s in Telluride, but I’ve been here in Plano since 2006 because I haven’t gotten well enough to go back home. My condo’s rented, and so I’ve got that income. Also, I sold a rental property and got some money last year. I didn’t know if that was going to trigger the IRS.
Jeff: Sometimes, it will. Sometimes, the brokers or the title company will file a 1099-S, which will show proceeds from a sale of a home.
Caller: Most years, I’ve gotten refunds. Colorado has state income tax. Can you help me here? Because I don’t know when I’m going to be well enough to go back home.
Jeff: I’ll be glad to help you, Ma’am. Our office number is 972-378-5200, and there’s somebody right there right now if you want to call that number. They can book you in, and we’ll help you out.
Caller : Well, I know years ago when I did this I filed for five years at once, but I called the IRS and had them send me what years that I had missed and what work records, because I’ve only got one work record back from 2005.
The other thing I did was I’d been living out of an IRA until I got that property sold, and I just kept withdrawing a little bit of it every time I needed to pay bills.
Jeff: Right. It sounds like your situation, it may be complicated, so it’s something we probably should talk off the air and in the office.
Caller: Okay. Can I ask you how you charge?
Jeff: We usually charge by the form, but most of our clients – an average return would be about $200.
Caller 1: What about five or ten years?
Jeff: It would be the same charge, just going back. We keep all the forms and all the software going back five or ten years.
Caller: So, it’s $200 to file them all, or $200 apiece?
Jeff: It would be per return. That’s an average. Like I say, some may be more; some of it may be less. If you’re concerned about the price, then you can come and see us, and we won’t charge you. We’ll just try to give you an estimate, and we’ll stick to our estimate.
Caller: Just point me in the right direction.
Jeff: Okay.
Caller: Thank you so much. I really enjoy your show.
Jeff: Thank you.
Patrick: Thank you so much. Well, that was an excellent call. I appreciate someone who’s calling in and saying, “Here’s where we’re at. This is what we need to do. Where do we go from here?”
If you have more questions, even if it’s not about what we’re talking about on the air, if it’s about taxes, if it’s about estate planning or asset protection, by all means call 214-787-1570 to speak to Jeff Pickering CPA, Masters in Taxation. He really works with businesses in a way to reduce their, if you want to call I,t IRS visibility or footprint.
And then Rex Hogue of Bolinger & Hogue. I know they work with folks on all kinds of ways to reduce your estate tax bill, if I can say it that way. Right, Rex?
Rex: Yes.
Patrick: I know one of the things I want to get real quick to is some of the bullets. What are some of the bullets that our Texas will does not dodge?
Rex: Well, we’re really talking about a simple will, but we’ll talk about it. We say that there are six, but there are really seven. It’s a seven-shot, six-shooter.
Patrick: Seven-shot.
Rex: Incapacity is something that your will doesn’t plan for. We’ll talk about that a little bit. Leaving your spouse high and dry – a lot of people think if I give it all to my spouse, I’ve taken care of them. It may not be true at all. Bullet number three is what I call getting even with your minor children. Leaving minor children property in your will is not doing them any favors.
The other thing that happens is the law of title. Most people don’t realize we have a will that expresses exactly how we want assets to go, but what they don’t realize is there are other ways to pass assets that bypass the will.
Another thing you have to look at is the dangers of probate. We’re going to talk about probate a lot next week. Probate is not a problem; it’s the solution to a problem, but there are some cases where it’s not a good solution.
Another thing that people overlook is estate tax planning, and they don’t do it because they think we don’t have enough, but the truth is every married couple should have an estate tax plan because it does some things for them not related to taxes that married couples want to accomplish.
Finally, we’ll talk about the fact that a will is supposed to provide you peace of mind, but it’s really a false sense of security.
Patrick: Why do you say false sense of security, real quick?
Rex: Basically, wills can be very misleading. I’ve had people come into my office. They paid a lot of money for wills, and the will doesn’t control any of the property that they expected it to.
Where that’s really distressing is for a surviving spouse where they were expecting that they’re going to be taken care of only to find that assets have passed outside of their hands due to some means of transfer that they didn’t realize trumps a will. When that happens, we say that that will arrived dead on arrival.
Patrick: Ouch. That’s good information. We’ve got more to come as we progress through the show today. This is Tax Talk. I’m Patrick Dougher. We’ve got Jeff Pickering CPA, Rex Hogue, attorney in the North Texas area.
Just one last note is if you want to ask these guys a question during the week, call them at their office. Jeff, I know you’ve got somebody there right now that can take the call and schedule something up if somebody wanted to meet with you at 972-378-5200.
And then, Rex, your recording is on because you’re here. They can call 972-309-0104. Again, you guys are both local guys, Plano for Jeff Pickering CPA. Rex, you guys are up in Frisco.
We’ve got so much more to come. We’ve got callers on the line. If you do have a question that is about taxes in any way or estate planning, asset protection, you want to call 214-787-1570. We’ll be right back.
[commercial]
Patrick: Welcome back to Tax Talk. This is Pat Dougher. The more you know, the more you get to keep. In the coming tax tsunami, it’s going to be important that you have good advisors around you, that you get good information to help you reduce your tax footprint, so to speak, your tax liability, whether it be estate tax or business taxes because they’re just going to be climbing out of this roof.
I know one of the things that we want to do, I invite you to call in. If you’ve got a question about any kind of tax question, estate tax, asset protection, or something of that nature, even if it’s not about what we’re talking about, call in to 214-787-1570, 800-583-1570 if you’re outside the DFW area, or if you’ve got a Sprint phone, you can call #KLIF to get on the air.
With that, I know we’ve got Chris on the line. Chris, you’ve got a question about a bond maturing. Go ahead.
Chris: Yes. I purchased some bonds last year, and I paid over par value for them. For example, when they mature, I’ll get $1,000 back, but I gave like $1,050 for them. Since I’m holding them to maturity, when they finally mature, will I able to say that I gave $1,050 for them, but yet I only got $1,000 back and write that off my income tax as a loss?
Jeff: Yes, that’s right. Your basis is generally what you paid for something, and in this case you paid over par, and then your proceeds are what you got. It just works as simple as that.
Chris: Okay, sounds good. Thank you much.
Jeff: Sure.
Patrick: Thanks so much, Chris. Well, I appreciate that. If you want to call in, it’s 214-787-1570 in the DFW area to get your tax questions answered. I know that we briefly went over a couple of the bullets, and I know you have a special report, right, Rex?
Rex: Yes, we do, Six Bullets Your Simple Will Can’t Dodge. It’s available, normally a $69 report. We’re giving it away today. If you’ll contact our office, we will send you a copy of the report at absolutely no cost.
Patrick: How can they get a hold of you? What do you want to do?
Rex: They can call us at 972-309-0104, or email us, rex@bigtexlaw.com. It’s important that they leave us a phone number. This week, we had several situations where people sent us an email requesting the report, but their email bounced, and bounced, and bounced and we can’t contact them to tell them we’re trying to send you the report, but the email address we got, somehow we didn’t get it right.
Patrick: So, they need to leave their phone number. Is that correct?
Rex: They need to leave a phone number so we can call them back.
Patrick: Email a couple of times. Make sure it comes through good and solid.
Rex: That’s right. A lot of people, when they leave a phone number, they’ll, “I’m going to give you my phone number,” and then they zip through it so fast it’s really hard to get all the numbers, especially if they leave a long message.
Patrick: I understand. One of the things we want to encourage you to do is get that special report, Six Bullets Your Simple Texas Last Will and Testament Can’t Dodge. I know we briefly went over some of the points, so if you want to expand on it, you go ahead, Rex.
Rex: Sure. Let’s talk. The very first one is incapacity. A lot of people don’t realize a will is only effective on death, so you can’t name somebody to take care of you in case of incapacity.
And it’s not valid until it’s been probated. A lot of people think, “Well, if I have a will, I’ll avoid probate.” Nothing could be further from the truth. It guarantees that they go through probate.
Patrick: So, it guarantees that they go through probate if they have a will?
Rex: Absolutely.
Patrick: Okay. So it’d be good to find out how to avoid probate. Is that something that’s a good thing?
Rex: Whether that’s a good thing or not really depends on the case. But, the thing that we see way too often is people think, “Well, I’ve got a will. I’ve got it all done.” But there are really eight essential documents, so let’s briefly tick off.
You also need a power of attorney. You need a medical power of attorney. You need a medical memorandum. You need a living will. You need a declaration of guardianship. You need a HIPAA authorization and a disposition of remains.
If you don’t have all eight of those documents, you do not have an adequate estate plan at all. It’s just absolutely sure you will need all of those – hopefully, you won’t need them, but those are all essential parts of an estate plan.
Patrick: Is that something that you guys do?
Rex: We do that with every will or trust that we do. All of those documents are included.
Patrick: Oh, okay. So, if they needed any of that information, any of that stuff taken care of, you guys can handle them right there in Frisco.
Rex: Yes, that’s exactly right.
Patrick: So,9 they can call you at 972-309-0104, and you can get this special report. I’ll tell you, folks. It’s worthwhile. You need to get it. A lot of people, they are like, “Well, I don’t want to think about my death.” Well, it’s going to happen. Last time I checked we only had two or three that didn’t cross that bridge, and some of them went and came back. Anyway, as far as that goes, it’s pretty much 100% death and taxes.
Rex: Yeah, death and taxes are the two most certain things. The one good thing about death – it doesn’t get worse when Congress meets.
Jeff: Right, definitely.
Rex: Another thing that we talked about is leaving your spouse high and dry. There are two things that typically go wrong. One thing is that the spouse doesn’t know how to manage the available resources.
In some cases, they don’t even know what resources are really available. It’s amazing in this day and age how many spouses are in the dark about even parts of their family finances that can prove to be devastating.
Another real problem is second marriages. If you’re in a situation where either spouse has children from prior to the marriage, a will-based plan is, in my opinion, almost never appropriate, and I’ll tell you why I say that. We have probated a number of them. I have yet to see a situation where the will did what the surviving spouse expected it to do when you’ve got children from a prior marriage.
It’s just a very difficult situation. If you’re in that situation, you are in great need of very good planning, way better. You’re just not going to get by with a simple will and expect to not start World War III in your family.
Patrick: Well, I know that one of the things that you deal with a lot is basically asking the tough questions.
Rex: Yes.
Patrick: When you guys sit down with somebody and start to ask the questions of, “Let’s set a plan together that will put somebody in order.”
Rex: Right. We do. We ask the tough questions that may annoy some people, but we’re not really trying to. We’re trying to get them to recognize that this is a real issue. I can think of so many times that we wish Mom or Dad had done more effective planning.
This week we’ve been dealing with – it’s probably not that unusual a situation; three kids. One lives in the town where Mom died. One lives in another place in the country, and he’s the one administering it. The third child lives somewhere else.
What’s happening is the child living there is getting a lot of the good, juicy assets, and the administrator’s getting a lot of them, and the third one’s feeling left out.
Well, our hope is this isn’t going to create such a breach in the family relationship that they basically stop speaking to each other. But, the sad thing about this case is Mom had a simple will, but it did not address all kinds of things that – really, we see these train wrecks coming, and you could pretty much have predicted this one, not because the kids don’t get along, they got along really well, but after somebody dies you’ve got to divvy this up some way, and it’s got to seem like it’s fair.
Will Rogers once said, “Never say you know a man until you’ve shared an inheritance with him.” So, sometimes, even the closest of families can just be torn apart by lack of effective planning by parents, and it’s sad.
Patrick: And you guys can handle that.
Rex: Yes.
Patrick: One of the things you want to do is sit down with you guys, sit down at Bolinger & Hogue in Frisco at 2595 Dallas Parkway. You can connect with them at 972-309-0104. Call to get your special report this week. It’s The Six Bullets Your Simple Texas Last Will and Testament Can’t Dodge. It’s worth it. It’s free. You might as well do it.
Get that taken care of, and then after the break we’re going to give you the three keys to increasing your profit, reducing your tax bill, and providing a better way of living, so to speak, in the next few years with the coming tax tsunami. I know that with that, we are going to be right back.
[commercial]
Patrick: Welcome back to Tax Talk with Patrick Dougher, Jeff Pickering CPA, Rex Hogue, Bolinger & Hogue in the North Texas area. We are talking about saving you money on your taxes. I know that one of the keys that we wanted to bring out this time was the three keys to increasing your profits.
Jeff: Yes, we’ll talk about the three keys. But, before that, though, let’s talk about this one case that I wanted to get to. It’s about Robert C. Fortunato, whom everybody called Bobby; Bobby Fortunato.
Patrick: Yes, Mr. Fortune.
Jeff: Yeah. He served a prison sentence for robbery and experienced other legal troubles as well. One of his brothers formed a container freight station in a warehouse in New Jersey, which later were combined into a single company.
Bobby didn’t have an ownership interest, but he worked for it. His role was concealed and his pay was concealed from other people, but he avoided filing and paying taxes as an owner.
So, he established a hub for the business in California, managed it in a clandestine fashion. He had no title in a California business and he was not an officer, but he ran the California company as he saw fit. He referred to himself as the CEO of the California operation.
Rex, this is an estate tax case, so let’s see what your – what happened is the IRS ruled that the company was not part of this guy’s estate; Bobby’s estate.
Rex: Classic mob scenario. He controls it, but he doesn’t own it.
Jeff: We’re not saying that he was a mobster, by the way.
Rex: Right, we’re not saying that.
[laughter]
Rex: But, it does look awfully suspicious.
Patrick: Guido is not coming to your door. Go ahead.
Rex: Yeah, and neither is Bobby. What’s interesting about this case is that the court ruling is exactly right. What the IRS was trying to do is tax the value of these businesses and his estate.
Well, the estate tax is a tax on the right to transfer. If the court had found in favor of the IRS here, this would have been a disaster for normal Americans because normal people get pensions that end upon their death, they get annuities that end upon their death, and the reason those are not taxed as part of the taxable estate is you’re not going to pass them on.
Same with your funeral plot. You’re not going to pass that on, so no matter how expensive your funeral plot or mausoleum is, it’s not part of your taxable estate because there’s no transfer.
The reason it’s a tax on the right to transfer is because a direct property tax is unconstitutional for the federal government, so the only way the IRS has of taxing this legally – and that’s debatable, of course – but it’s to tax the right to transfer it.
Here, because Bobby did not own it, he could not transfer it to someone, therefore it is exactly the right decision is his estate not be taxed.
Jeff: Because his brother actually owned it.
Patrick: So, it just goes back to his brother, who already owned it anyway.
Jeff: His brother had the official title in it, even though he ran the place. It’s kind of weird because usually in IRS cases, the IRS actually looks to the form of the thing rather than the substance. In this case, actually, the substance, the way the transaction was structured actually…
Rex: Well, the form of it. They got tripped up here. The form is actually what [24:30 inaudible].
Jeff: Right. Excuse me, I said that wrong. It’s substance over form. The IRS usually looks at substance over form.
Rex: Right.
Jeff: And in this case, exactly. The form was the brother.
Patrick: Isn’t that one of the keys, though, to reducing your tax footprint is the form of the entity?
Jeff: Well, in that case – actually, you touched on one of our topics of our three things that you can do to reduce your taxes and increase profits. One of them is definitely the form of the entity. It’s a big thing. It’s something that should be done right and first, so before you go out and start the entity that’s going to change the world, you want to make sure you’ve got the right one.
Rex: And you want to back that form up with the substance.
Jeff: Definitely.
Patrick: Now, when you say substance, what does that mean?
Rex: For example, if you’ve got whatever entity – a corporation, an LLC, a limited partnership –you want to make sure that you’ve got more than just a secretary of state filing. You need your corporate documents, your company agreement; stuff like that to go along with it so that you can show the IRS there’s substance to this and that records are being kept and all that stuff.
Patrick: You can’t play company. You actually have to create one.
Jeff: You can’t just paper shuffle. You can’t just paper shuffle and create the stuff.
Patrick: Right, right. That’s one of the keys. Are there certain forms that are more tax advantageous than others?
Jeff: Definitely, but what it takes is you have to analyze what the owner is trying to do, and that’s usually when somebody comes and talks with us – I’m going to say us, Rex and I also – that we try to figure out exactly what they’re trying to do first.
Rex: Exactly. There are certain things, for example, if you hold real estate in a corporation, something that’s taxed as either an S Corp or a C Corp, I can tell you’ve made a mistake. There are better ways to do that. Partnerships for holding real estate work much better, but that’s not necessarily true of other types of businesses.
Jeff: You also have to remember that whenever you’re… These are general rules, and we understand the reasons for them. So, if you know the rules, you can break the rules if it’s appropriate. I don’t mean breaking the IRS rules. These are general rules for entity classifications.
Patrick: Right. It really is the more you know, the more you get to keep.
Jeff: The more you know, yes. Setting up the right entity at the beginning is very key to saving your money.
Patrick: Very good, very good. One of the things I want to make sure, because I know we’re coming up on the end of the hour and we’ve got two more keys that we want to get out real quick, is that if you’ve got a question about do you have your company set up right. They need to call both of you guys?
Jeff: We typically do both.
Rex: We could even work together on it.
Patrick: Very good. So, 972-378-5200 to talk to Jeff Pickering CPA, and he can begin the process. Rex, you guys can make sure that everything is done right on the back end as well too. That would be 972-309-0104, and they also can make sure that you’ve got the special report for this week and get things set up there.
Rex: Absolutely.
Patrick: Again, just to give your number one more time, Jeff. It’s 972-378-5200, and somebody’s there right now so they can call and set that up. What are the next two, real quick?
Jeff: We’ve got planning. I think I’ve said there’s nothing more fun than tax planning.
[laughter]
Rex: There are some normal people who don’t agree with that, but we think it’s fun.
Patrick: I think pulling my eyeteeth out without Novocain, but go ahead.
Jeff: I don’t think there’s anything more fun than tax planning, but tax planning is key. Usually, our clients we do it at least once a year, and more if you’ve got something special coming up. So, I always tell my clients if you think there’s something that’s coming up that’s going to have a tax impact, come see me because it just may.
Our last key, especially for the business people, is having timely information. Timely information is good for making your decisions on profitability. We do that. We give our clients their financials two weeks after their stuff is given to us. We give them a report card and compare their entity with other entities as well.
Patrick: Very good. Well, I know we’ve got a couple of things coming up next week.
Rex: Next week, we’re talking about probate. The week after, we’re talking about asset protection.
Patrick: And then I know on the tax side we’re going to be talking about the 3.8%…
Jeff: Medicare tax.
Patrick: Medicare tax. It’s been a great show. Make sure you tune in next week noon to one on Sundays on KLIF. We’re so thankful for you listening in. Again, you can always pick up the show on DougherSuccess.com. Usually by Thursday, I have the transcripts out there.

Welcome to Tax Talk. The more you know the more you get to keep with your hosts CPA Jeff Pickering and Pat Doer on Radioactive talk radio 570 KLIF.

And welcome to tax talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bollinger and Hogue attorneys in the North Texas area. We’re here giving you answers to your questions concerning taxes. You know, in the next few years as we look at the demographics of KLIF, I see a group of people that are 30 and above, typically educated, married and conservative. If that’s you, then you know that the government has massively over spent its income. And that means one thing, they’ve got to pay for it. And the only way they can pay for it, really, is taxes. So taxes are going to be one of the biggest combatants to our success in the next few years. One of the things we want to do is give you the opportunity to get your questions answered when it comes to any kind of asset protection, and really it’s asset protection from who? The IRS and anybody else that would like to sue you into oblivion, which, today anybody can sue anyone.

Thanks guys for being on the air. I know Jeff we have some great things in front of us and I know that you always have some deadlines that are coming up.

Jeff: Sure, we’ve got some deadlines and these deadlines are franchise tax returns. So if you have a business, your franchise tax return is due May 17. It’s usually the 15th, but when it falls on the weekend, you know it’s due the next business day and you should pay, if you owe, you should pay even if you file an extension. So, we have a very unusual deadline also on May 17, and that’s for the nonprofits. So if you are a treasurer and you serve on the board of a PTA or a garden club this deadline is a new deadline for you because of a law change. Previously you were exempt if your gross receipts were under $25,000 for filing a nonprofit return. Well, that rule is kind of gone out since 2006 and if you don’t file for three years, then you lose your nonprofit status. So if you don’t file something by the 17th of May and you’re one of those organizations that has never filed, you may be losing your tax exempt status. You’ll go into a taxable status. Which means all your income will be taxable and you may not be able to deduct the things you normally deduct. So just watch out if you’re a treasurer of a small group like that. Most religious organizations are going to be still exempt. We are only talking about those, you know, the PTA and other garden club type organizations. We have one more, this is springtime and it’s Mothers’ Day…

Pat: Mothers day, I was going to say the deadline for Mother’s Day is today.

Rex: Let me ask, that last one, booster clubs, band booster clubs?

Jeff: Yes and booster clubs would be one of them.

Pat: I asked my wife about that, and I saw that in our notes, and she said actually they had set their fiscal year to be that of the school year so they just finished their year in May. They file in September.

Jeff: They may be a fiscal filer. This deadline is for the calendar year folks. So we have one more deadline, which is property tax. If you want to protest your property tax, remember, this month is the month you’ve got to get your property tax protests.

Pat: And that’s going to be big for all these people that have foreclosures in their neighborhood. Honestly, we are one of those and we looked at that and said we’ve got to file their, we’ve got to object.

Jeff: If you’ve got to do that, I recommend you don’t go down there and waste people’s time. Definitely have your stuff together for a valid protest.

Pat: Now, I understand that some of that you can do online now too.

Jeff: That’s true. I understand Tarrant County has a nice little online procedure.

Pat: Now, to me that raises another flag for taxes. Because if I go down and object, instead of being an expense “x” minus $40,000, that’s going to subtract a huge tax income for the area.

Jeff: A lot of protests are based on what other properties are doing in the area and I am sure everybody may be getting a flyer in the mail from one of these property tax companies. Just as a reminder, if you planned on protesting your property taxes, this is the month to do it in.

Pat: And they need to do that over the next few years. That may come up again and again because a lot of people that have adjustable-rate mortgages, those are exploding in defaults in the next two years.

Jeff: Right. You want to take a look at what’s happening in your neighborhood, definitely because it is a neighborhood specific thing. There are other things that people do, your property backs up to a road, so it’s worth less. There are ways to do it. But I recommend you don’t just go down there and say “Hey my property taxes are too high” because you’ll be wasting your time and the review board and that’s never a good thing.

Pat: Ouch. On of the things we want to make sure is that you have the phone number to join the conversation. It’s 214-787-1770. If you’re outside the DFW area, it’s 800-583-1570. Or if you’ve got a Sprint phone it’s #KLIF. So Jeff, what else did you have?

Jeff: We’ve got a, for Mother’s Day, kind of going into a Mother’s Day theme here, we are going to talk about how to hire mom and get a tax credit, as well as have a tax holiday. So, that will be a fun thing to do. A lot of people who have businesses, mom works there anyway, whether she’s paid or not. Apparently, there is this big gaping loophole in the Hire Act, which was passed by this administration earlier this year. And the gaping loophole has to do with hiring your spouse.

Pat: really?

Jeff: Right, so you can get $1000 tax credit as well as get a payroll tax holiday for paying mom for what she’s already working, and get the credit. We’ll talk about that and other Mother’s Day issues, we like to talk about. We like to talk about the adoption credit that’s new and expanded under the Obama care. Sometimes we visit this issue about cord blood. Which I didn’t know what core blood was. So cord blood is this thing that, it’s the umbilical cord blood that you can pay like $2500 to $3000 and apparently, they freeze it for you and then later on when you have a disease, you can use your own cord blood to cure yourself, like when you are an adult.

Pat: Wow, so it’s kind of a wonder, I don’t want to say wonder drug. But it’s a…

Jeff: Yes it’s one of those technology things that’s out there and I had no idea. And I never did that for my kids, but it’s a topic out there or for mothers. I was looking at this and it looks like it’s a tax detection for you because it’s for the prevention or mitigation of a disease. So, that fits the technical definition of a medical deduction. So, there is cord blood, when you talk about medical expenses for special education, if your kid has autism, usually autism treatment costs anywhere from ten tosometimes hundreds of thousands of dollars, so you can write that off if you have a kid that is autistic.

Pat: great. One of the things that we want to do is also give you an opportunity to meet with one of these guys. Jeff, I know your office is just north of Dallas in Plano at 6533 Preston Rd. Suite 300. What’s the cross roads on that again?

Jeff: It’s Spring Creek and Legacy on Preston.

Pat: And then Rex, your office is up there in Frisco at 2595 Dallas Pkwy. You’re just north of 121 right?

Rex: North of 121 just south of Gellar Pkwy. We are in the Hall Office Park in the Starwood medical office on the first floor.

Pat: Both of you guys would like for people to call you and you would sit down with them to help them with their tax needs as a CPA and any kind of Estate planning, especially to reduce the taxes. And folks, that’s what this show is really all about, lowering your tax bill in every way. So you can call Jeff at 972-378-5200, Rex, you can get a hold of Rex at 972-309-0104. And coming up, we’re going to be talking about the top 10 reasons why you need a Heritage Trust in your will or trust. With that we’ll be right back.

Pat: Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area giving you answers to your tax questions. Join us at 214-787-1570. If you’re outside the DFW area it’s 800-583-1570. Or if you have a Sprint phone just dial # KLIF to join the conversation. We’re talking about the top 10 reasons you need a Heritage Trust in your will or trust.

Rex: Let me start first by saying that generally mothers have this instinct to protect their children, but a lot of people don’t even think about that when they start passing assets to their children through their estate plan, but they should, and we’re going to give you the top 10 reasons, Dave Letterman style. Number 10, not subject to estate tax in the estate of a beneficiary for many generations into the future. That’s the number ten reason for having a heritage trust. Number nine is, it keeps a beneficiary eligible for governmental assistance programs. Number eight, it keeps the assets in the family bloodline. If the beneficiary dies first and their spouse remarries. Number seven, can’t he grabbed by beneficiary’s spouse in case of a divorce. Number six, can’t be grabbed by a beneficiary’s future lawsuit creditors. Number five, can’t be grabbed by a beneficiary’s current creditors. Number four, provide money management for a beneficiary that isn’t a good money manager. Number three, it avoids being a probate asset when a child dies. Number two, it avoids being a guardianship asset if the child is incapacitated. But the number one reason, it keeps property separate where it doesn’t get comingled.

Pat: And all this is what a Heritage Trust does?

Rex: Yes, and that’s just our offices terminology for it. But the idea is that when you pass it to your children, there’s things that you want to protect them from. And if you just give it out right, they don’t get the benefits of any of these protections. Let’s take our number one reason. We know of a case where a daughter inherited, she got a significant amount of money from her parents and about a month later she showed up to discover one afternoon that her husband had moved out of the house, totally unexpected, no warning and shortly after that she had discovered that he had emptied out the bank accounts. Well, how did it happen? When she received the inheritance from her parents, she put it in a joint bank account and maybe up to that point, nobody realized the husband was a slug. I don’t know. But chances are real good there were warning signs that that was a bad idea. And sadly, it’s not what her parents wanted, certainly not what she wanted, left her sitting with a couple of minor kids to take care of and suddenly no money, no job training, she was just a mom up to that point. So, stuff like that can be very devastating. And parents can protect their children from it, but once your children receive the money, it’s very difficult for them to protect themselves from that because they either don’t see it coming, or it didn’t come to them in such a way that they even have the ability to protect themselves.

Pat: But you’re saying with a Heritage Trust they would?

Rex: That’s correct. And a Heritage Trust is a trust that goes inside a will or a living trust. So just because you have a will or a trust doesn’t mean that you have this kind of protection for your kids. If the plan that you have, regardless of how you do it, through a will, beneficiary designations, right of survivorship if it goes out right to that beneficiary, you don’t have any of those protections built in for that beneficiary. Another great example is look at our number four reason to provide money management for the beneficiary with a good money manager. Well, we know of a case where a gentleman named Luke received a sizable inheritance from his father, at least what appeared to be a sizable inheritance, about $500,000. Luke was a schoolteacher, good guy, married, a couple of kids. But Luke thought “Man, I am rich.” So, you know what he did?

Jeff: But a Porsche?

Well, no. That’s what a lot of people would have done. But Luke thought hey I want to be this big shot businessman so he quit his teaching job, joined the country club, got into all these business deals he didn’t know anything about. The fact of the matter is he went broke in less than a year. The entire $500,000 gone, his marriage was on the rocks. The problem isn’t that Luke was a bad guy. The problem was Luke didn’t know how to handle money. And I always encourage parents to think about don’t give it all to the child at once. There’s an interesting scripture that says “an inheritance gained hurriedly in the beginning will not be blessed in the end.” I can’t tell you how many times I have seen cases where kids went and blew an inheritance in the first year or two when they are still hurting from mom and dad being gone. They are not making their best decisions. And that’s really a time where they need some brakes on what they get, brakes like you have on a car, so that they don’t go and blow the money at a critical time. And really, Luke would’ve been better off if he had never gotten the money. He had a good life, a good family, but that inheritance literally ruined him, and it is sad.

Pat: Well that’s what they say about people that win the lotto, that there have been some studies on that. And I have even seen it where, back when I was in the financial planning realm, somebody that inherited, even a spouse that inherits half a million or 1 million, whatever from the death of their husband. When they get that, the average widow goes through their inheritance in about five years or less.

Rex: Yes statistically it takes less than two years to blow through the average inheritance. You mentioned the Porsche. Do you know how long it takes from the time somebody inherits money until they buy the Porsche?

Jeff: I’m going to guess about three months.

Rex: Try three days.

Jeff: Oh my.

Rex: Just got the check from dad, going down to the Porsche dealer tomorrow and pick it, three days. It’s shockingly quick. That’s just about enough time to come home from the funeral, if you think about it. Three days. It’s like the very first thing they do when they have some money.

Pat: Well, they’ve lived paycheck to paycheck, a lot of people live paycheck to paycheck. Then all of a sudden they’ve got this whale of a paycheck. Well now they gotta eat through it.

Rex: That’s right. They continue the same lifestyle that they’ve had they’ve just got more money to blow all of what. So it’s really sad. We’ve got a couple other really interesting cases. One of them is a very famous person. We’ll talk about it after the break. But these kinds of situations are things that you want to protect your kids from. You know the situation where they are in a marriage with somebody who’s going to take advantage. One thing that we see is particularly the husband may say, “Well you know honey I’ve always wanted to go into the business. If you really love me…” Well, maybe if he really loved her he wouldn’t ask to go blow the money on his bad business investment that he can’t invest in.

Pat: A lot of people are afraid to say no.

Rex: That’s right, especially to a spouse. And especially after you’ve just lost a parent. You’ve already lost somebody significant. The last thing you want to do is see your marriage disappear.

Pat: And I know a lot of you might have questions about your own situation. Just call us at 214-787-1570, that’s 214-787-1570. If you’re outside the DFW area it’s 800-583-1570 or #KLIF on your Sprint wireless phone. Also want to make sure that you know you can talk to these guys during the week. It’s 972-378-5200 to catch Jeff Pickering. I know Jeff even has someone standing by that they can get some information. And I know Rex, you guys have this top 10 list as a special report this week, don’t you?

Rex: Yes, we do have a report. It’s a report on Heritage Trust. Technically the name of it is Will Your Children Lose What You Leave Them Due To Divorce Or Lawsuit?. We are offering that free report, normally it is $79, but if you will call us and leave us a message, we will get this report out to you. Call us at 972-309-0104. Make sure you leave us a phone number or email me at Rex@bigtexlaw.com and put your phone number on there because sometimes we’ve tried and tried to send these out by e-mail and it doesn’t work.

Pat: Very good. Well again it’s 214-787-1570 to get us here and ask your tax questions and after the break will be talking more about your tax answers to the coming tax tsunami. We’ll be right back.

Pat: Welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bollinger and Hogue Attorneys in the North Texas area. We’re talking about the top 10 reasons why you need a Heritage Trust in your will or trust. We’ve gone through the top 10 list like, who’s the guy you said, like the guy Dave Letterman? Or any of those guys just backwards and forwards, and then given some stories on exactly how to protect your assets. And a lot of people don’t realize that some of the biggest culprits for stealing an inheritance are just immaturity with money, that’s what it sounds like, is that right Rex?

Rex: Yes, I think that’s actually the most devastating thing that happens to estates, is just people not knowing how to manage it. You know, Jeff brought this really interesting article to our attention and I want to cover it before we get back to ours. Jeff, when you cheat on your taxes, make sure you get a note from your lawyer or your accountant, which is kind of interesting because, you don’t get one of those notes if you use TurboTax.

Jeff: Right, right. And we’re not telling people to cheat on their taxes or whatever. This just illustrates what happens, this guy is in Minnesota and it’s a district judge. He was caught, or convicted of evading taxes $1.1 million and the guidelines, sentencing guidelines were for 41 to 51 months, he only got 18. And the judge took into consideration that the attorney gave him a letter and the guy followed it. And he’s saying why should he get the maximum sentence when he’s following his advisers advice to the letter? There’s also another reason to do this and not just because if you to get convicted, you’ll get a lighter sentence, that’s not the main thing. But there is a penalty called the Substantial Understatement Penalty that you can get out of if you have an attorney or a CPA giving you tax advice. And you’re right Rex, TurboTax or one of those online software programs, you can’t get out of the penalty by using those programs. They don’t constitute tax advice.

Pat: So don’t roam the halls without a hall pass from your CPA or your attorney, when you’re roaming the halls of the IRS…

Jeff: That’s right because you can get out of the penalties if you have a CPA or an attorney.

Rex: It kind of shows that we don’t believe in cheating on taxes. Because he still wound up going to jail, he just got a lighter sentence because he was following his attorney’s advice. At any rate, let’s go back to our top 10 list. A lot of people, when money is inherited people don’t think about protecting their kids. And we encourage people to use what’s called a Heritage Trust. And Pat, a Heritage Trust is a trust that provides protection against all of these 10 things that we talked about. It’s terminology that we use in our office. Other offices call it different things. The name is not important. It’s what it does that’s important. One of the things that happened to me several years ago, I was with another group of attorneys, and one of the guys told the story about a young lady, who I’ll call Kerry. She inherited $3 million from her parents. Unlike a lot of people, Kerry had some financial maturity, knew how to handle the money, but she was involved in a car accident where someone tried to go around her at an intersection, clipped her bumper, caused her to veer off, she T-boned a van load of daycare kids. It killed the driver and two kids. Really sad case. This happened in Colorado. Under Colorado law, if you’re found 10% liable you can pay 100% of the claim. Well there was a lawsuit, like you would expect over a tragic car accident like that. They sued Kerry and they sued the driver that hit her and the jury came back and found Kerry 10% liable and they found the guy that hit her 90% liable. But of course after his car insurance he didn’t have any money. Even though Kerry had good car insurance, you can’t go get enough car insurance to go kill three people. So, the jury came back with a $9.18 million claim and just like that Kerry’s $3 million disappeared. And the guy asked was there anything else that they might have done in the planning to have kept that from happening and the answer is yes. A great example of that is the story of Ted, who got a little bit too much elbow exercise one night, failed to negotiate the bridge over Chappaquiddick…

Jeff: We are not saying his last name, are we?

Rex: We’re not mentioning his last name, his initials are Ted Kennedy. Not really poking fun at him, but he was drunk and drove off the Chappaquiddick River Bridge. Mary Jo Kopechne died. The Kopechne family sued Ted Kennedy for millions. And as we all know, he was a multimillionaire. But the only thing they could get to was the car insurance because all the money that he inherited from his parents came to him in what we called a Heritage Trust. And that’s really interested, because Kerry was 10% liable and she lost everything, Ted was 100% liable and he lost nothing. And then in 1982, when Ted and Joan went through a divorce another advantage of a Kennedy type Heritage Trust came up, and that was Joan didn’t get any Kennedy money as part of a divorce settlement, because it had been kept separate, it was protected, and as a divorcing spouse, she couldn’t get to any of it. So when we talk to people about trying to protect their children, you know whether you like or dislike Ted Kennedy, really isn’t the point. The point is his family did a really good job of planning, whereas Kerry’s parents did not. And like I said, Kerry was a responsible young lady who had the skills to manage that money. She had been taught that her whole life, her parents always had money. So, she was well prepared to take it on from the standpoint of maturity. But, other things they couldn’t control came up that they just want expecting.

Pat: Well, isn’t that the best illustration, of the more you know the more you get to keep. And that’s what this show is really all about folks, is the more you know the more you get to keep. And that’s why we’re talking about taxes, estate taxes, taxes on your business and we all know that the government’s overspent its income and they’ve got to pay for it. They’ve got to pay for it with more taxes. And that is the reason why this show is on the air, so you can get unbiased good advice on how to save money on your taxes. That’s what this is really all about. I know, Jeff, did you have anything to add on that story or did you…?

Jeff: I see something that, the business about managing your money and knowing what to do with it. I can see it in my practice and sometimes I see ,unfortunately, I see a divorcee and they do go through the money and Pat, what you were saying about…about five years?

Pat: That’s what I’ve seen. Some of the things back when I was in the financial planning realm.

Rex: Statistically, if less than 18 months.

Pat: I wouldn’t doubt, I mean it’s, you get a big check, you’ve lived paycheck to paycheck, it doesn’t matter what the size is $10 million, $100 million.

Rex: We had a case one time where the surviving spouse hired us to help and her husband had always taken care of the money. When she wanted to hire us, she had to call us back and say I don’t even know how to write a check. She had never written a check. This lady was in her 70s. By the time she came to us for help, her husband, who had given her over $500,000, she came to us about two years later, and there was less than $150,000 left to take care of her. 73 years old. You know what she started doing? She started being a greeter at Wal-Mart because she needed the money. She had never worked outside the home one day in her entire life. But she didn’t know anything about managing the money and she said something to me that I have never forgotten, her husband’s name was Tom and she said I wish Tom had told me what I was supposed to do with the money. No instructions. So, you’re right Jeff. Of course maybe when they go through a divorce, they’re not inclined to listen to instructions, or maybe the spouse isn’t inclined to give them, but the sad ones are the widows who just had no idea how to manage many. And they go blow it simply because they don’t know.

Pat: Well, again 214-787-1570 to join the call and conversation with Jeff Pickering CPA and Rex Hogue with Bollinger and Hogue about your situation when it comes to taxes and things of that nature. One of the things that we want to also do is make sure that you connect with these guys. Call their office. Jeff, you’re at 972-378-5200 and up there at 6533 Preston Rd., Suite 300 in Plano. And you said that’s at Spring Creek and Legacy. And Rex, you guys are at 2595 Dallas Pkwy. and that’s in Frisco. Connect with you and you can get this top 10 list right, the special report?

Rex: Yes they can get the report.

Pat: That’s on the Heritage Trust?

Rex: Heritage Trust. Just ask for the Heritage Trust Report.

Pat: That’s 972-309-0104. We’ve got some additional information coming up and it will have to do with payroll tax and ways that you can save more on your tax bill. We’ll be right back.

Pat: And welcome back to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bollinger and Hogue in the North Texas area. We’re talking about ways to save you money on taxes and also to even really talk about ways you can protect your children and their children from the IRS or KGB, or whatever, taking too much of their inheritance. It is a time where you can sue anybody for almost any reason and lose everything. So with a Heritage Trust, which is what Rex has been talking about much of the show, it’s been an excellent show on the top 10 reasons to have a Heritage Trust in your will or trust. One of the things you want to do is make sure you get that information from Bollinger and Hogue at 972-309-0104. And then the one other thing we want to do, of course, is honor moms today since it is Mom’s day. And Jeff, I guess, you found a way to hire her.

Jeff: that’s right. So it’s is Mothers Day, and what better way than to get a tax credit?

Rex: Mom would say getting roses, but…

Jeff: well, that’s right. So, on the Hire Act, you can hire your spouse. If you have a business, you can hire your spouse. The Hire Act gave you a payroll tax holiday for the employer portion of payroll taxes and it also gave you $1000 tax credit if you keep them on the payrolls long enough, a year. Many small businesses have the spouse working there, whether she’s paid her not, she’s probably there anyway. And all you have to do is make it official. Put mom on the payroll and you get a, you increase her Social Security credits, you know you’ve got to get 40 credits to get fully paid and for Social Security so that’s a good reason to hire mom. And in addition, you’ll get a payroll tax holiday, that means you don’t have to pay the bosses portion of Social Security and Medicare, and you get the tax credit. This Hire Act, you can’t do this with your kids because they specifically excluded kids, but they left a hole big enough to drive through for mom.

Pat: Now, how much do we have to pay mom? Is there a limit on the low end or the high end or just have her earning $100, $200, $500 a month?

Jeff: well, the qualification is, there is an amount that you have to pay for the credit, but for the payroll tax holiday there’s really not a qualification for that except that the last 26 months have to be 80% of the wages of the first 26 months, and there are some other things that we should probably should blow through here, just some qualifications. This person you hire, which is mom, couldn’t have worked for 40 hours during the last 60 day period.

Pat: Oh, so they have to be unemployed essentially?

Jeff: Right, but like in small business, that’s usually what’s happening anyway. They’re unemployed, they’re helping out. So if they haven’t worked 40 hours within the last 60 day period They start their employment after February 3, 2010, which is when the Hire Act was signed. You can’t have mom replace another employee, unless that employee left for good cause or voluntarily. And then, you can’t be related in a way that would disqualify you for the work opportunity tax credit. So, for most of these people, what that means is dad that has to own the business and if mom is working there. There are some things that will disqualify you, if son was an owner in the business and mom was working there. That would be a disqualified relationship. But, if you’ve got the typical dads working, moms working, it kid might be an employee, that’s a typical thing, then you can hire mom and get a $1000 tax credit.

Pat: Excellent, what a nice way to spend it on her roses this year guys. Guess we’ve all got to bring that today.

Rex: One more thing on the top 10, often overlooked, is that people have children that perhaps have special needs and they may not realize that if you give that child any kind of been inheritance you may disqualify them from all sorts of government benefits they’re otherwise entitled to. Well, if you leave it to them in a Heritage Trust, one of the features is that it also works like a special needs trust so that that child does not become ineligible for governmental programs they are to qualify for. It’s always sad to see a kid that really needs some help, and there’s a governmental agency that provides assistance. They get enough money to disqualify them but not enough money to take care of that child from now on.

Rex: They are stuck in the middle.

Pat: That’s what’s in the Heritage Trust, again, you define that how?

Rex: It protects your kids from lawsuits, divorces, taxes, overspending, kids going wild. It’s hard to say exactly, it’s easier to say these are the things that it protects you from, our top 10 list, than define exactly what it is. But that’s what you look for, what does it protect you from.

Pat: And then they get the information, your special report, by calling you at the 972-309-0104. That’s 972-309-0104 and your office is up there at 2595 Dallas Pkwy. in Frisco. So call and set an appointment, and get the report. Set an appointment if you want to learn more about or set one of these Heritage Trusts up. It sounds like it’s very effective, because I understand that even helps save taxes on the inheritance down many generations.

Rex: That’s right. Your kids do not have to pay estate taxes on what you give them. So, that’s an advantage a lot of people don’t realize. The IRS gets a bite at your inheritance at every generation, if you don’t set it up in some kind of trust that keeps the IRS from doing it.

Pat: Very good so call 972-309-0104. And just they can get a hold of you at the 972-378-5200, 972-378-5200. And I know also as we are finishing up the day, I wanted to make sure that one, we acknowledge moms, we say thank you to moms for all you do. The other thing is that a lot of our businesses deal in cash basis types of programs.

Jeff: I have some that are cash basis clients, so the kind of businesses they deal in cash. We do have the audit guide if anybody’s interested. It’s the IRS Audit Guide for Auditing Businesses. It’s the IRS playbook

Pat: And with that, they’ll be able to learn exactly how to lower their, essentially their IRS footprint. We are so thankful for this week gang. Next week will be talking about more information that has to do with saving you money from what you spend on the IRS. Let’s all admit that we’d rather not pay them anything more than we have to. We’ll be talking to you next week. Again you can also pick the show up Thursday’s; they’ll repeat it at PatrickDougher.com or Doersuccess.com.

Patrick: This is Tax Talk with Patrick Dougher. We have had a little technical problem with the start of the show, but no worries.

Today, we’re going to be talking about how to save you money on taxes, but even more than that, teach things that have to do with asset protection, especially in the wake of this new tax tsunami that’s coming. I don’t know how many of you are really following all that. I’m sure most of us are, actually, because it’s going to affect us.

Before the show, Jeff Pickering CPA and Rex Hogue Attorney in the North Texas area at BigTexLaw.com, they were telling me all these different stories of how the next few years, if you don’t plan your tax strategy, you’re going to get damaged in more ways than you could imagine. Thank you for listening to Tax Talk.

Jeff, I know we’ve got some deadlines coming up. You want to tell us about them?

Jeff: Our big one is May 15th, and this is an unusual one because most people aren’t aware of this deadline. So, if you’re on the board of a local booster club, or a civic club, or some nonprofit, you may be losing your tax-exempt status on the 15th, which actually is going to be the 17th, because the way the due dates work is if it falls on a Saturday, then it’s due the next business day.

You may be losing the tax-exempt status of your little organization, and by little organization I mean the ones that have $25,000 or less in annual receipts. Previously, they were exempt from having to file their tax return, but there was a 2006 law change that took out that ‘under $25,000, you don’t have to file business.’

They give you three years to comply, and May 15th is the third year. So, unless you file, you might be losing the tax-exempt status of your little -itty nonprofit out there. I know there are a lot of them out there, so if you serve on the board of one, you definitely want to pay attention and get on the stick.

Patrick: Well a lot of them, like I know my wife’s really active in the band boosters. They’re in Saginaw, so if they don’t comply, then they could lose their charter?

Jeff: They could lose their tax-exempt status.

Patrick: Tax-exempt status, very good.

Jeff: Which means that all their revenues would be taxable.

Patrick: Wow, that’s painful at every level. I know that also we want to talk about asset protection. Some of the things that we were talking about on the way in here, especially, was how so many people, they do some tax planning. They go out and they get a trust, or they get an LLC, or they get something of that nature with an attorney. Then they leave it in a drawer.

Three years, four years, five years go by – is it still relevant. Rex, what are some of the problems that you can run into with that environment?

Rex: There are several possibilities. One is that maybe you’ve had a change in the marital status of one of the kids. They’ve either gone through a divorce, or they’ve gotten married, or maybe you’ve now got an extra grandchild you didn’t have before.

In some cases, we’ve seen people go through a divorce, and they haven’t ever changed their beneficiary designations. They even go get remarried and then die, and then they find out – actually, they don’t find out; their new spouse finds out – this insurance they’ve been paying for goes to the ex-spouse, or maybe the adult kids from a prior marriage when they’ve got new, young kids. We’ve seen some of those situations.

One of the things that we suggest that people do is take a look at your plan every three to five years or when there’s been a major life event in your family such as a wedding, or a divorce, or the birth of a child.

Patrick: I know that with some of the things we were talking about before was that there are so many changes that are happening right now it would seem we’d almost want to check three or four times a year. But, what do you feel about that with all the changes that are going on this year?

Rex: Well, while there are a lot of changes this year, we’re not telling people that you ought to come in and get your plan redone simply because, generally, we’ve been planning for the possibility of 2010 for several years, ever since they passed the new law in 2001. We never believed it would get here, but we had a plan in place for it. We’ve got a plan in place for 2011.

Now, what may change in 2011 is the exempt amounts will be different, and if the exempt amounts are really different that may affect a lot of planning because we’ve been telling people for years we’re not going to fix a tax problem for 2011 today because Congress may fix it.

Patrick: Right. One of the things to go back to, you just assume that the audience understood some law that’s out there that was set in, what, 2001?

Rex: 2001.

Patrick: Okay. What was that law that you’re addressing right there?

Rex: The Economic Growth and Taxpayer Relief and Recovery Act of 2001, which George Bush signed into law on the June 7th of that year. It ratcheted up the estate tax exemption immediately to $1 million, and then it’s slowly been going up. In 2009, it was up to $3.5 million. There is no estate tax this year, but it sunsets at the end of this year and the exemption goes back to $1 million on January the 1st of next year.

So, for years we’ve had this joke that 2010, we call it the ‘throw momma from the train’ year, because if you wake up on December 1, and Mom has a large estate, and you realize, hey, if she dies this year, no tax, if she dies next year, $5 million in tax. “Mom? Want to go on a train trip?”

Jeff: She should bring her own taster to your Thanksgiving dinner.

[laughter]

Rex: Absolutely. But, we never really believed that 2010 would get here with this law still on the books, but Congress somehow never did anything all during that time. Congress changes the tax law it seems like every year, but they have managed to leave that part of the law alone.

It’s really going to create some problems for people, because they’re going to have situations where they maybe didn’t have a problem back in 2001, but depending on what they’ve invested in, they’ve actually grown. They now have what will be a taxable estate problem at the end of the year if Congress doesn’t do something.

Patrick: I guess I’m just enough of a conspiratorialist that I sit there, and I think about 20 years ago they were talking about the wealth transfer. In the ‘90s and 2000s, it was going to be like $6 trillion or something that was going to change generations from one to another.

So, when they threw in this exemption in 2000, and it was going to be Katy bar the door, but a lot larger caps until 2010, I’m thinking who’s dying that the transfer is going to take place within that time period? Does anybody else feel the…

Jeff: I know what you’re getting at. There are some tax laws that you look at them and you think, “Alright. Now, what specific individual or company was this written for?”

Patrick: Exactly. Who was this written for?

Rex: Who’s lobbying for that?

Patrick: You just start wondering which banking institution, family… Well, whatever.

Rex: In the 2001 law, what a lot of people don’t realize is that the reason that law only lasted ten years is because it did affect government revenue. Basically, we have what’s called a pay-for system. If we’re going to cut taxes here, we have to pay for it with a tax increase somewhere else.

Under EGTRRA 2001, there were some real savings of taxes, particularly in the gift and estate tax area. Well, that had to be paid for elsewhere, or the law has to sunset in ten years unless Congress renews it. There weren’t pay-fors in the 2001 law generally in EGTRRA – the gift and estate tax part, anyway.

So, it’s set to expire, and among the things that they did to offset was they increased the capital gains tax, and we now have a stepped-up tax basis that goes back or will soon be going back to past generations.

Well, imagine the problem. If you inherit a home from your parents, typically when they die, if you sell that house you pay capital gains tax on its current day value. So if they die, and it’s worth $200,000, you don’t pay any capital gains tax even though your parents may have paid $25,000 for it.

But now, they’re eliminating the stepped-up tax basis, so you could pay capital gains tax on $175,000 unless you can prove the improvements down through the years which people generally don’t track.

Patrick: Interesting, interesting.

Rex: Yeah. We call it the CPA Full Employment Act.

Patrick: CPA Full Employment. I believe that.

Jeff: It would be difficult to track all of the improvements you make in your house.

Rex: And the further back you go, the harder it is.

Patrick: I believe. Well, I know that a lot of you may want to join the call, so 214-787-1570. If you’re outside the DFW area, it’s 800-583-1570, or if you’re on a Sprint phone, it’s just #KLIF. This is Tax Talk, Pat Dougher, Jeff Pickering, Rex Hogue, and we’ll be right back.

[commercial]

Patrick: This is Tax Talk with Pat Dougher, Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area with Big Tex Law or Bolinger & Hogue. One of the things we want to make sure is that you know these guys are local. Jeff, you’re at 6533 Preston Road, just north in Plano. What’s the cross streets again?

Jeff: It should be Spring Creek and Legacy Drive.

Patrick: Spring Creek and Legacy. And then Rex, you guys are up in Frisco, but it’s just north of 121, right?

Rex: North of 121, just south of Gaylord on the west side in the Starwood medical offices.

Patrick: On the tollway.

Rex: On the tollway, yes.

Patrick: Right.

Rex: 2595 Dallas Parkway, Suite 100.

Patrick: Very good. So, you just walk in the door, and you guys are on the left.

Rex: Yes.

Patrick: The other thing I just always want to make sure that you guys know about is MetroCollegePlanning.com; they’re one of our sponsors, and they do these workshops where they show parents of high-school kids; 9th, 10th, 11th how to get their kids in college without going broke. I’ve been to their workshop. I’m blown away. You need to go to one of their workshops.

Just go to that MetroCollegePlanning.com. If you’re in the Dallas area, just click on the A button or the Fort Worth area. The B button, you’ll get to meet the guys that are there. I tell you, they do these workshops usually Tuesdays or Thursday nights. You don’t want to miss them. They’re worthwhile. They’ll save you a ton, because now college is so expensive.

I know that many of you have questions for Jeff and Rex, so it’s 214-787-1570 or #KLIF if you’re on a Sprint phone. Jeff, you had a story about dividends that you wanted to talk about?

Jeff: Right now, there’s a bill in Congress, and the Democrats are going to nearly triple the top rate for dividends. So, what we’re looking at is right now the preferred dividends are at 15%. Last week, the Senate Budget Committee passed a resolution that includes letting the 15% go away and replacing it with a 39.6%, and then tack on to that an extra 3.8% surcharge on investment income.

There you go. 15% to 43%. It’s a triple increase in taxes, and it’s a little more than what Mr. Obama had promised as far as his campaign promises.

Patrick: One question: who would be affected by that the most?

Jeff: Probably anybody that’s a family that’s making more than $250,000. They would pay the surcharge. So, a husband and wife, $250,000, they’d be hit by that.

Patrick: But, if they’re earning that much, let’s say that they’re earning, say, $60,000 a year or $80,000 a year from the dividends. Is that what you’re saying?

Jeff: Well, if they were earning… No, not necessarily. What they’re going to do is, right now, there’s a preference for these dividends to be taxed at 15%. They’re just going to take it away. So, that means they’ll be taxed at your highest rate, basically.

Patrick: Right. Typically, how much do people earn on something like that? Because what I’m thinking is if they were earning, say, $100,000 on the dividends, all of a sudden now they’re going to go from $15,000-ish to nearly $50,000.

Jeff: Whatever their incremental tax rate is going to be.

Patrick: Ow.

Jeff: It’s like being taxed at your wage income, but even more.

Patrick: Wow. That’s amazing.

Jeff: I also wanted to mention, last week we had some requests for – we talked about the IRS playbook for cash businesses. The IRS, internally they have to make information available for free, so they published the audit guide for cash businesses, and we’ve had some requests for those.

There’s one guy that requested it, and somebody in our office, actually, I think they deleted his email. So please email me again if you’re that guy that didn’t get the audit guide.

Patrick: Explain what the audit guide’s going to do again.

Jeff: What it is is if you’re in a cash business and you think that… I actually just like to look at these. If you are audited, this is what the auditor would be looking at. This is his playbook. These are the things he’d be checking for you if you were in a cash business.

That’s what we offered last week, and you can still get it. Just email us again: jeff@pickeringcpa.com.

Patrick: Very good. I know one of the things, Rex, you were talking about, you had heard stories of people that were trying to withdraw some money out of their cash business. How did they find the difference, so to speak?

Rex: There are all kinds of interesting ways. If you own a laundromat, for example, and you just take money out of the machines, the IRS can actually go back, and look at your water bills, and calculate how much of a big leak you’ve got, or they know you’re stealing from your business.

Or maybe you have a soft drink company. You’re putting soft drinks in machines, taking the money out, and you just take money out and don’t report it. Well, they can track how many drinks you’re buying and what your average price is. They know you’re not pouring it out on the sidewalk.

So, a lot of people have no idea how clever the IRS can be about finding stuff like that, and they see everything. We encourage people, don’t cheat on your taxes. That’s what got Al Capone sent to prison.

Jeff: That’s right.

Patrick: Now I know that there are some changes in IRA laws?

Jeff: Right. There was a recent court case with the IRA. Rex, can you enlighten us about that?

Rex: Yes. This is an interesting case. It’s out of California. What it says is that an inherited IRA is protected under the bankruptcy code. Basically, a father made his daughter the beneficiary of his IRA. After she got it, she went and declared bankruptcy and got a Chapter 7.

The bankruptcy trustee objected to her trying to make that IRA an exempt asset, but the court found, and the appellate court ultimately found, that in fact that should have been an exempt asset.

What’s interesting about the case, though, is that it’s different from Texas law, and I find two things interesting about that. Number one: Texas is far more debtor-friendly than California. California’s like the world’s worst place to be if you’re a debtor, whereas Texas is really the best state in that respect.

But, in Texas, inherited IRAs are not protected under the bankruptcy code. So, what it does is it sets up a situation where we have one circuit where it’s exempt and one circuit where it’s not, and that makes the case ripe for being appealed to the Supreme Court so that we get a national rule.

Now, I can tell you, it’ll be interesting to see who appeals. If this was an IRS case, the IRS would never appeal that. The last thing they want is a rule that works against them all over the country. So, I don’t know whether the case would be appealed or whether we’re just going to have two different jurisdictions.

But, if you have a child who is going to inherit an IRA, you don’t really know what the rules are going to be because it depends on what state they are in as to whether it’s going to be a protected asset or not.

There are things that you can do to make sure it is a protected asset if they go through bankruptcy or whatever, but your kids cannot do it for themselves. They’re strictly going to be victimized by whatever the state law is.

Patrick: Interesting. What are two things that somebody could do? Obviously, they need to consult their attorney. Obviously, we need to make sure that hearing this stuff on the radio does not constitute being a client. Hiring one of you two is that. But, what are two things that you’ve seen people do?

Rex: There really are two ways to do it. Our preferred tool is what we call the retirement plan trust, or it goes by a lot of different names. But it’s a special trust for the IRA – 401K, 403B 457 plans where when your beneficiary inherits it, it has built-in features, and you make the trust the beneficiary, and then you make the beneficiary, your child, the beneficiary of that trust. If the trust is set up properly, creditors cannot get into it.

Another alternative that some people do is that they’ll name their revocable trust, and they’ll have those protective features maybe in a revocable trust or maybe in a trust created under their will. Unfortunately, a lot of those don’t have the protective features, but if they do, the only problem with doing it that way is they have to pay the income tax first to get the protection. With the IRA trust, you don’t have to do that.

Patrick: Now is this information in your report, “Is Your IRA an IOU to the IRS?”

Rex: Yes, and we’re offering that free report today because we’re talking about that case. Yes, that is a report that folks can call in or email us, rex@bigtexlaw.com, or call our office, 972-309-0104. Let us know that you would like a free copy of “Is Your IRA an IOU to the IRS?”

As you can probably guess from the title, that’s not even the main issue, but it’s what we’re focusing on today because of this California case.

Patrick: Interesting. So, they can just call 972-309-0104, leave their complete information. Don’t leave anything out. Make sure it’s all clear.

Rex: Yes, make sure you leave his phone number.

Patrick: Yes, a phone number’s good, or they can email you at rex@bigtexlaw.com. I know one of the things that we want to go into also is we want to get into the whole thing with IRAs and the new Roth IRAs. I’d love for you guys to talk a little bit about it, because I know there are some estate asset protection things that they offer that a lot of people aren’t even aware of.

I know that we’re also going to get into some other things that have to do with what’s Obama doing with the tax law and how he’s going to be – really, I think he’s going to be hurting a lot of people, a lot of business owners, with much, much higher tax rates over the next few years. With that, we’ll be right back.

[commercial]

Patrick: Welcome back to Tax Talk with Pat Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger & Hogue – Attorneys in the North Texas area. We’re talking about taxes, asset protection, ways that you can get ready for the next tax tsunami that, quite honestly, most of us that are looking at anything in the news right now can’t help but see.

The fact is that we’ve got some real issues ahead of us with taxes going to rates that haven’t been seen since, gosh, I don’t know, maybe the ‘60s; just really high. We’re very much on target for that. Jeff, I know we’ve got some other things that you had wanted to talk about.

Jeff: There is this one thing that’s going around in the tax world, and since this is a kind of tax show, we’d better mention it. It’s called the toothless provision; sometimes they call it the de-fanged provision of the ObamaCare. What it is is in about 2014, you’re supposed to have healthcare if your family doesn’t have it and if you don’t, you’re supposed to assess a tax on yourself and report it in your income tax return.

Patrick: Assess a tax on yourself.

Jeff: Right. The bill says there will be a tax on you, and the bill says that the IRS cannot use – the IRS is the enforcer, by the way – the IRS can’t use its power to levy, and lien, and all the power it has to collect your money.

Rex, we can’t tell people, “Don’t worry about it. You won’t have to pay because they can’t get you.”

Rex: They can get you.

Jeff: They can get you. They call it the toothless provision because they can’t levy and lien to get the money. In fact, there was an article on FactCheck.org: “Is the new bill going to expand the power of the IRS?” Some people said yes; FactCheck.org said no. But, I think that FactCheck.org, maybe they had the facts, but they didn’t have the reality. They didn’t have RealityCheck.org.

Patrick: I’m going to get that.

Jeff: The reality is if you put a bill that doesn’t have any way to collect it, it’s not a tax. So, what’s going to happen? What’s going to happen is they will change it.

Patrick: Right. They’ll let it go through one year, maybe two and then they’re going to go, “Nobody’s paying, so we’ve got to enforce it.” Bring out the KGB or whatever.

Jeff: Exactly. The IRS doesn’t have enough provisions to this money that’s not being enforced. That’s what’s going to happen. That’s the reality.

Patrick: You’re going to start up RealityCheck.org?

Jeff: I think I should. So, that’s it. If you’re out there and you’re hearing this talk about the toothless provisions, that’s what we’re talking about. They call it the Personal Responsibility Provision, like you’re supposed to assess it and pay it, this fine. But, that’s really what’s going to happen.

Patrick: The one thing I heard, and I’ll invite you. This next thing I’m going to talk about, you’ll want to call in on because this got me all ruffled. It’s 214-787-1570.

The question is if you own a business, a couple of years from now, if you’re an S-corp or you’re a sole proprietor, a couple of years from now you’re going to have to 1099 everyone. I mean, everybody you write a check to, you’re going to have to prove that you wrote a check to them. In the past, that hasn’t been the case.

Jeff: One of the provisions, one of the revenue raisers in the ObamaCare bill is to require 1099s to be issued to corporations. Right now, if you have inc., corp., incorporated, or corporation in your name, you’re not supposed to be getting a 1099-Miscellaneous, for instance, for services. That’s going to change.

One of the attractive things about being an S-corporation is that you don’t have to deal with all of this paperwork. You report your income, but for some people they have to time, “That guy mailed the check on December 31st. Did I receive it?” You have to deal with issues like that.

What will happen is everybody’s going to have to – if you’re a corporation, if you paid a corporation, you’re going to have to issue them a 1099.

Patrick: Wow. Ow, that just hurts all under.

Rex: You know, we get a lot of checks from business owners, so we get these requests for 1099s. We get a few of them every year. Apparently, we’re going to get a whole lot more of them.

Patrick: That’s just scary.

Rex: It’s just extra trouble for us. It’s extra trouble for the business.

Jeff: It’s compliance cost. Congress never measures how much burden it is on us tax-payers to comply with their rules.

Patrick: Ow. I also want to make sure that people know that you guys have a couple reports. You have an asset protection workshop coming up in June, right?

Rex: We think it’s going to be June.

Patrick: June. I know it’s had some scheduling issues, but if they come they’re going to get a ton of information. One of the things I’m really thankful for is that you guys are going to be rolling so much value on the table. If you don’t come to this, you’re really going to miss out because it’s not going to be a sales pitch. It’s going to be an info overload to a great degree.

They’re going to give you tools, and techniques, and ways of saving you tons of money, checklists that you can take back to your own attorney, your own CPA, that will help you save. If it doesn’t save you at least ten times what you invest, I think you either didn’t pay attention…

Rex: They weren’t paying attention.

Patrick: …or they didn’t even look through the book that was there, because I know that you guys are going to supply a booklet. Is there anything else that you guys are going to provide for them?

Rex: The notebook that comes with it is going to have over $400 of information. It is going to include checklists and some of these reports that we’ve offered. The cost is going to be $79, but due to our scheduling issue, we’ve decided to extend the $59 to anybody who goes ahead and signs up.

We are anticipating June; it might have to be put off until September. We’re trying to work out the schedule. But, if you go ahead and sign up, you do get $20 off. So, they can call our office and do that.

They’re going to have to trust us on the date, but we’re either going to get a date, and if it doesn’t work for you, we will refund your money. But, we do have some nice benefit, getting that $20 off.

Patrick: Sure, and they’d sign up how?

Rex: Somebody told us that they did something similar to what we’re doing, only not quite as much information. They charged $495 a person.

Patrick: Well, they should. And you guys should.

Rex: After we saw that, we’re thinking we’re not doing it for this small amount again.

Patrick: I understand. So, how would they sign up?

Rex: They can call our office, 972-309-0104. Let us know they want to come to the seminar and give us a credit card. Or they can email rex@bigtexlaw.com, let us know they want to come to the seminar and give us contact information so we can get in touch with them and go ahead and get their payment, and we’ll keep in touch with them.

Patrick: Jeff, you’re going to be giving away some real helpful tips and tools as far as how to not make your company as visible to IRS audits and some other really helpful tools as well.

Jeff: We’ll do our usual focus on reducing your audit footprint and also to keep the things that we would normally do to make sure that if you are audited, you’re prepared. Actually, we’ve got something that last week we mentioned how the IRS audits cash intensive businesses. It’s a great thing to know, especially if your business is cash intensive.

If you’ve got a lifestyle that can’t be supported by the income that you’re reporting, then we may have a problem there. If you have a business that continues to have losses with no solution to correct the problem, maybe there’s something there. Those are signs that the IRS is looking for.

Patrick: Very good. They would get that information how?

Jeff: They can email me at jeff@pickeringcpa.com or jeff@taxtalkradio.com; either one of those.

Patrick: So, it’s jeff@pickeringcpa.com.

Jeff: It’s a mouthful in any language, pickeringcpa.com.

Patrick: Very good. But, they also can call you, and they would get a hold of you at…

Jeff: 972-378-5200.

Patrick: I encourage you to really get a hold of this information. I know that for a lot of people that might be listening, they might think, “Well, it may not affect me.” However, in the coming years, more people are going to be sole proprietors and basically solopreneurs than you ever thought that we would have. I’ve seen some really good numbers on that and by 2013-2014, as much as 30% of the work force.

Jeff: You’ve got to think, if you’ve got a risk – with high tax rates, you’ve got a risk. If Uncle Sam’s going to take your money, you’re more prone to take a risk and start your own business. Most businesses will have write-offs in the first two years, so people will be more in business for themselves.

Patrick: I know one other thing right before we go to break is that afterwards I’d like to talk about the whole 1099 inspection. That’s that the IRS is actually going to locations, going to companies, and they’re only looking for one thing. They want to find out are all the people that you’re 1099ing really that way.

They’ve got a checklist that they’re going through, and you’d be surprised. You think you’re a consultant that people are paying you outside of that. If you fail one of those tests, you’re an employee. That’s a real big issue. We’ll be right back.

[commercial]

Patrick: This is Tax Talk with Patrick Dougher, Jeff Pickering CPA, Rex Hogue of Bolinger & Hogue in the Frisco area, and we’re talking about taxes, estate planning, asset protection, ways to save you money. Right now, that should be at the top of your attention list because we have a tax tsunami that’s about to sweep this nation.

I think most of us can look around and see that if you write a kite check for $1.6 trillion, it’s going to have an impact. You’ve got to pay for it somehow, and it’s time to wake up and look at the more you know, the more you get to keep. Without seeing that and learning that, you’ve got a problem.

I know, Jeff, you’ve got some things that are coming up. We want to look at this IRS audit that it’s one of those things where somebody will come into your office, and they’ll ask for just one thing, and that is “What’s your 1099s?” With that, I know that we’re looking for how do we pass this test?

Jeff: What you’re looking at is a 20-point test; they decide for independent contractors whether somebody’s an independent contractor or an employee. A lot of times, this comes about as a result of a TWC audit, because they’re the ones that actually usually initiate this stuff. Most people are likely to get a TWC audit, and they’re the ones that are focusing the most and care the most. Then after that, then it may become an issue with the IRS.

Rex: Our office just went through one of those TWC audits.

Patrick: Oh, really?

Rex: Yes.

Patrick: Go ahead.

Jeff: Rex’s office just went through one of those TWC audits, and of course they came out with flying colors. Rex is above board about everything. It comes out as a part of the TWC and then extends over to the IRS. There are some things you can do if you really try hard to keep yourself from being in that employee category.

Patrick: What are a couple of the questions that they were asking you about the 1099s?

Rex: What they wanted to know is were the people who we sent 1099s to, were they in fact employees? We had very good records we could show that we don’t control their hours. They’re all project-driven. We don’t tell them when you have to come in. We just give them a deadline for the project.

We looked at it real hard before we do that. A lot of people don’t. They just think, “Well, I can pay somebody on a 1099 basis,” and it won’t actually work.

Patrick: I met a guy this last week at this workshop here locally that I was attending, and he said that he was an engineer. He drove an hour every day to a facility where they were paying him as a subcontractor. I just went, “That violates so many rules. You had to be there at a certain time. You used their computer, their equipment in their office, and you’re being paid like a subcontractor?”

Jeff: Right. One of the things, section 530, it keeps going away, and then it comes back. It gets resurrected. Section 530 relief is a thing that you can use to make sure you’re not dinged for the employment taxes.

Section 530 says that you have somebody positioned. You’ve always treated them as an independent contractor. Everybody else in that position has also been treated as an independent contractor. All the forms are filed as if they’re an independent contractor.

You had a reasonable basis – now this is the tough part, the reasonable basis for treating them as an independent contractor. What does that mean, actually? It means that other businesses in your area are also treating people like that as an independent contractor.

One of the ways you can establish that is the proof. You have to do this proof before the IRS comes knocking at your door. That’s the way section 530 works.

Patrick: So, you have to prove it ahead of time.

Jeff: You have to prove it ahead of time. A clever guy – I think he was a plumber, or a pipe fitter, or something – he had a business where he was treating everybody as 1099. He wanted this section 530 relief so that the IRS couldn’t reclassify them as employees.

What he did was he went around to other pipe-fitting businesses, and he pretended he was going to be a pipe fitter. He went around and said, “I’m going to come work for you. This are all my conditions. I’ve got a truck,” or whatever, the same exact conditions that he had for his employees. He documented that most of the people in his area were treating the pipe fitters as independent contractors. That actually held up in court. So, a good, sneaky way to do it.

Patrick: That’s good. That’s good. I know that one of the other things we hear about are people that they inherit an IRA. Rex, you were telling us about a family member or something like that.

Rex: One of our clients inherited an IRA, $100,000. Did not realize that it was an IRA and he would have to pay income tax on it. His parents left him to divide the assets between him and his brother, so he gave $50,000 to his brother, who’s somewhat irresponsible.

Well then, he goes in to do his taxes this year and finds out he’s got to pay income tax on $100,000 more in income, $50,000 of which went to his brother. He goes back to his brother and says, “Hey, I’m going to owe some taxes on that.” His brother’s like, “Really? I spent the money.”

Jeff: You know, Rex, the same thing happens when people get a divorce. The guy pulls the money out of the 401K, and then he gives half to the wife. It’s not taxable to the wife, because it’s a distribution of the marital estate.

Patrick: Ow.

Rex: Yes, you can actually fix that through a QDRO.

Jeff: Right, the QDRO.

Rex: But if somebody let that happen through their divorce lawyer, and they didn’t fix that…

Patrick: What’s a QDRO?

Rex: I’m sorry. It’s a qualified domestic relations order.

Patrick: I just know you guys have more letters in your head than most of us.

Jeff: I know. You know the funny thing about the QDROs is that a lot of divorce attorneys don’t know about them or don’t want to deal with them.

Rex: Yeah, that’s scary. Second marriages are a real problem with IRAs because if you have kids from a prior marriage and you’re thinking, “I want to take care of my wife, but when she dies, I want to make sure that my IRA goes to my kids.” If you give it outright to your wife, and you die, your kids are never likely to see it. But, if you give it to the kids, your wife will never benefit.

One of the things we talk about in our report is how do you fix that problem? Through a qualified retirement plan trust.

Patrick: Very good. Basically, everybody gets what they’re supposed to get. Is that what I’m hearing?

Rex: Yes.

Patrick: It sounds like such an issue, that we wouldn’t want to deal with that, or that’s not going to happen. But, I know you guys deal with people that are splitting up estates all the time, and it sounds scary to me.

Rex: We see a lot of stuff that people just have no idea of what the rules are. They think it’s going to happen. What we tell people is if it isn’t written down, it’s not going to happen. It’s just not.

Jeff: It’s a free for all, but actually, it happens.

Rex: Going back to this client who inherited the $100,000, his parents would have never dreamed what happened. He’s going to pay $30,000 or $35,000 of the $50,000 he got in taxes.

Patrick: That’s amazing. This is the kind of information that you guys deliver every day to your clients. So, with that, I want to make sure that people have your numbers. To get a hold of Bolinger & Hogue or BigTexLaw.com, just dial 972-309-0104. You can also get your special report, and it’s the…

Rex: “Is Your IRA an IOU to the IRS?”

Patrick: Very good. “Is Your IRA an IOU to the IRS?” Say that really fast six times. You’ll get it for free. Anyway, just call and visit them in the Frisco area at 2595. Now, Jeff, I know really quick, we’ve got just a little bit here, you’re up in Frisco at 6533 Preston Road. The cross streets are?

Jeff: You would think it’s Frisco, but it’s technically still Plano.

Patrick: Plano. Do I have Frisco? So your phone number is…

Jeff: 972-378-5200.

Patrick: Very good. If you want to catch this show later this week, DoerSuccess.com.

Patrick: Welcome to this Sunday’s edition of Tax Talk. This is Pat Dougher, Jeff Pickering, CPA, Rex Hogue of Bolinger & Hogue, an Attorney in the Frisco area and we’re here to answer your questions on estate tax planning. Today, we’re going to be talking about asset protection. We’re going to be talking about the ObamaCare and some of the issues that are coming up with that.
We’ll also be talking about how to train your estate dragon. You’ll get that when we get to that point because I know that the new movie, “How to Train Your Dragon,” just came out. It was number one this weekend. We were like, “Well, you know what? There are estate planning dragons that you need to tackle as well.”
So with that, Jeff, I know you’ve got some things that are hot off the press. Go ahead.
Jeff: Yeah. Basically, I just wanted to remind everybody that there’s a tax credit for small businesses. There are two flavors of this tax credit. The one flavor is for businesses with 25 or more full-time equivalent employees, and the other is for businesses with ten or less full-time equivalents.
It’s the tax credit for providing health insurance; part of the ObamaCare thing. Basically, for the 25 or less, you’ve got to have average wages of $50,000 or less. For the ten or less, which is the full credit, then you’ve got to have wages of $25,000 or less.
This is a good credit. It’s usable; it’s very usable. You can use it against your AMT. There will be more stuff on it, but if you are a small business, you definitely need to look into the credit, because it’s here. It’s new. They passed it, so you might as well use it.
Patrick: Right. I know that a lot of small businesses are going to need some of those credits this next year.
Rex: You might remind people that the AMT is the alternate minimum tax. We use these acronyms on the air sometimes and forget that listeners may not remember what they stand for.
Jeff: Right, the AMT. It’s a big ouch. If you look at your tax return on page two, there’s a line in there. What’s this? That’s your AMT. If you’ve ever paid it, it’s very painful to know that you’ve paid it.
Believe it or not, some tax practitioners don’t even tell their clients that they’ve paid it. I find that baffling. But, I always tell people, “I’m sorry, you’ve paid the alternative minimum tax this year again.” What are we going to do? We’ve got to plan. We’ve got to do whatever we can to minimize that.
Patrick: That’s a real key for both of you guys. I know you’re big on planning. I know as a CPA, Masters in Taxation, you really sit down and prepare people for the year, not just for the return.
Jeff: Right. You should always – and that’s one thing I tell people. April 15th is behind us. That was just reporting the history. We should make history. We should plan and make the history, and plan and have your tax return the way you want it. You’ve got to be proactive in this part of your life.
Patrick: I know that with the 18+ years of experience that you have, Jeff, you really do bring a lot to the table. We were talking right before the show about when you worked for one of the Fortune 500s and you did their return every year. It took about nine months, but the one thing you did with every return was what?
Jeff: We always had to make sure that it could be audited and very easily defended.
Patrick: Very easily defended, that’s a real key. Well, Rex, I know we want to talk to you about your asset protection seminar, I know we’ve had to change the date, and then there are several other things.
One of the things I want to make sure that you know about Rex: 17 years as an attorney. He graduated from Texas Tech. Then I know you worked with some very large clients around the US. especially in the Dallas/Fort Worth area on saving them, really, it’s a wad of cash when it comes to transferring wealth from one generation to the next, right?
Rex: Yes, it is. Our seminar that we’ve been planning for May 15th, one of our strategic partners in this has had a conflict that they simply are not able to resolve. It came up this week, so we are going to be pushing that into June instead of May.
We’re going to have a special deal for those who have signed up, but there is still plenty of time to sign up. We’re probably going to offer yet another special deal, but it’s $79.
What people are going to walk out with is a strategic plan with some checklists about things that you need to have in your estate plan, things with your retirement planning, asset protection things.
We’re going to be doing some things for business owners, giving business owners some ideas on how to use things like limited liability companies and family limited partnerships so that they don’t remain income tax neutral as most of them are designed to, but that they can actually save you income tax and you can have some fun achieving that savings as well.
Patrick: Who would be an ideal candidate to come to this event? I know a lot of people are listening to it and they’re going, “Should I be there?” Who should be there?
Rex: First of all, if you’re a business owner, we’ve got a special session on how to figure out what is the ideal business entity for you. If you happen to be in the wrong entity, the longer you continue your business in the wrong business form, the more it will cost you.
So, at some point you need to think, “I need to start correcting that.” If you’re in the right entity, you want to make sure that you’re taking advantage of all the tools out there that you can use. So, business owners for sure.
Another thing is any investor that would consider something like a limited-liability company or a family limited partnership, they definitely want to be there. Anybody who was $200,000 or more combined between IRAs, 401Ks, 403Bs, all of those qualified retirement plans, and between husband and wife wants to be there. We’re going to talk about some strategies for how to maximize the benefit to your family of those IRAs.
Then the last group of people is people who just want some good, solid information about estate planning – we’re going to have a session on that – particularly if you think you might need more than just a basic estate plan. Of course, those folks are welcome to come as well.
Patrick: I will tell you the one thing I know about this workshop is that it’s going to be chock-full of information that they will walk away with. The one thing that a lot of people hear a seminar and they might think this is going to be a pitch fest. No, it’s not going to be.
In fact, there’s probably going to be no selling at all through the whole thing. It’ll all be about information to help you get what you need to know. That’s what I know of the two of you and the other people that are going to be involved. It’s really about delivering massive value.
Rex: Yes. The notebook that they’re going to get will contain over $400 worth of information, and we are undershooting that maybe by several hundred dollars. We don’t know yet because we don’t know all the parts that are going to be in there. But, that alone is going to be worth more than the price of admission.
Patrick: I know that, Jeff, you’re going to be also talking about how to basically make your return somewhat invisible to the IRS or not call attention to it is one way to say it.
Jeff: Well, we’ll be talking about strategies for filing and especially strategies for dealing with ObamaCare and our coming realization and reality of increased taxes.
Patrick: That’s right; the tax tsunami.
Jeff: The tax tsunami, specifically this bill and parts of it.
Rex: You know, I really like Snoopy’s approach. He wrote a letter to the IRS asking that they cancel his subscription to their service and remove him from the mailing list.
[laughter]
Patrick: Well, join the conversation today. It’s 214-787-1570, 800-583-1570 if you’re outside the DFW area and #KLIF on your Sprint wireless phone. We’ve got more to come. Call in. We’ll be right back.
[commercial]
Patrick: And welcome back to Tax Talk. This is Pat Dougher. We have a great show going today. We’ve got a lot of information that you’re going to get on asset protection and estate planning. I know that for some of us, we might think, “Well, that may not apply to me. “No, it really does. If we don’t start planning now, when are you going to start?
The earlier you start, the better off you are. Really, if you want to do it wisely, you want to think about your children’s children’s estate, and the only way to do that is to start thinking about that inheritance that you’ll pass down now.
I know, Rex, we just covered the workshop. I’m looking forward to that. It’ll be in June, for those of you that didn’t know. You can register by calling your office at 972-378 – no, that’s Jeff’s. They could call Jeff’s too – 972-378-5200 or 972-309-0104.
Rex: Yes. I don’t know if we have anybody there today. If they will leave a message, though. We will call them back and we will get them registered. $79. Really, folks, I just honestly think if you’re in those categories I mentioned earlier, you do not want to miss this.
Patrick: Very good. Those categories were business owners…
Rex: Business owners, people with IRAs that exceed $200,000, IRAs, 401Ks, 403Ks; all that stuff, and combined between husband and wife.
Patrick: Or somebody looking for a business – I mean not looking for a business, but looking to make sure that the structure of their business is the right way to get into it.
Jeff: To get into business, right. People even considering getting into business. I should also mention that we’ve got somebody – if you want to also talk to and register right now over the phone, we’ve got somebody at our office also there right now, which is at 972-378-5200.
Patrick: The other thing to emphasize, both of you guys are local guys. I know, Rex, you guys at Bolinger & Hogue. You’re at 2595 Dallas Parkway in Frisco. And Jeff, you’re just off of Preston at, what, 6533 Preston Rd, Ste. 300, right?
Jeff: Right, between Legacy and Spring Creek.
Patrick: Legacy and Spring Creek. So, you’ve got assets here that you can get a hold of and I encourage you to come to the seminar in June. Again, call in. It’s 214-787-1570 to join the conversation. You might have a question about is the structure of your business correct for the best tax advantage. You might have a question about how to make sure that your IRA is not an IOU to the IRS.
Rex: That’s right.
Patrick: Those are just some of the things that I know a lot of people may be looking at. It’s 214-787-1570. Now, I know that we were talking about taming of the dragons. Rex, can you tell us what dragons you’re talking about?
Rex: Well, when we look at somebody’s estate, we look at what we call the three planning dragons and they’re really classes of dragons. The first one is what we call the probate dragon; probate and guardianship. Now, we’re not out there saying that probate’s a horrible thing and you should never want to go through it.
However, if you realize that probate is the solution to a problem, and the problem is a person can’t sign their name so we have to go to court and get a court to do it, probate is a solution for that. Probate is not always a good solution. Sometimes, it’s a good solution, but a lot of times it’s not.
The second group of dragons are the tax dragons and we have really all kinds: income tax, estate tax, gift tax, generation-skipping transfer tax, capital gains tax; ll of those are taxes that people are subject to, and we just encourage people to talk about and plan for those various tax tools.
Also, entity taxation has a couple of aspects. They are taxed differently than individuals, it goes to a different division of the IRS, and you have to consider the impact of entities.
Finally, there are the creditor dragons. When we talk about creditor dragons, we don’t mean just people who you currently owe money to, we mean people who might sue you and become a creditor through winning a lawsuit, whether it’s a divorce case, or a personal injury case, car accident, or a business-related lawsuit.
A lot of people, when they talk about asset protection, all they want to talk about is that third class of dragons. Well, let me tell you something bad about the IRS or any other taxing authority. When they beat you, they lay out a road map for the rest of the world to follow. That means your other creditors can follow that road map.
And if the taxing entities can beat you on some aspect of taxation, guess what? That same argument can be used to beat your entity or whatever asset protection tool that you have –and that’s not a good thing. The last thing you want is your enemies laying out a road map for your other enemies to follow.
Patrick: Absolutely.
Jeff: Rex, you’ve actually got some experience in this. Last week, you were telling us about the guy living in the assisted living facility. According to this, I’ll let you refresh our memory, but I recall the guy didn’t look like a target.
Rex: No, he didn’t. He lived in an assisted care facility. He was pretty much just invested in cash. He didn’t drive a vehicle. So, he’s not the kind of person who’s going to generate a lawsuit. Didn’t own a home, didn’t own any risk-producing assets.
But, because of the size of his estate, the IRS went after him to collect more in estate tax than he wanted to pay. Sadly, he did wind up – or his family wound up – paying more than he really wanted to, but way less than the IRS wanted because of the planning we had done.
Jeff: Right. In fact, that was a precedent-setting case.
Rex: Yes, it was an interesting case because the IRS conceded every tax issue prior to trial, and it was an all-cash family limited partnership. We got a 32% discount from the tax court, which we’re not aware of the tax court ever having given more than a 15% discount for cash prior to that case.
What’s interesting is even if the court had found entirely for the IRS in the case, which they didn’t, we would have still been considered the big winners because the IRS offered us a bigger cash discount than the tax court had ever given.
One of the problems the IRS had was because they had to concede every single tax issue, they couldn’t find anything wrong with all the tax arguments. Then they pulled every arrow out of the quiver, but then they had to concede that they were either broken, or had blunt tips, or wouldn’t fire, or whatever. So, it got down strictly to a valuation case. But, it is an interesting case because it strictly involved the valuation issues.
Patrick: That’s a good point. In case somebody wanted to either listen to last week’s show or actually go back and read the transcript, I always post those on DoerSuccess.com. Each week by about Thursday, I’ll typically have them up there. You can listen to each of the recordings from the previous week if there was a question you had and actually read the transcript because I always post that as well. That’s really good and it’s great information.
I know that a lot of people might be curious about the rights of the creditors. Do you want to talk a little bit about that, Rex?
Rex: Sure. A lot of people want to think that you can go set up an asset protection plan and they don’t realize that potential creditors, lawsuit creditors, people that you’re doing business deals with, they have rights that a lot of people just want to blow right past that and pretend like those rights don’t exist. But, in fact, they do.
And the most important one is that a creditor has a right to make you play by the rules of the game that were in place at the time the incident occurred. So, when we talk about an incident occurring, we call that a triggering event; an event that could trigger a lawsuit.
Once that has occurred, whatever is in place right then and there, that’s what all the parties have to live with. We’ll talk about this more after the break. I know we’ve got a break coming up.
Patrick: Yeah, no worries. The one thing I wanted to do is make sure that people knew the May 15th seminar has been moved to June and you can register for that event at 972-309-0104 or 972-378-5200, which is Jeff Pickering’s office. There are people standing by, right?
Jeff: Right.
Patrick: The main thing is that they can register. They can connect with you guys. I really encourage you to call Jeff and Rex this week and ask them about some of the things that are going on in your life with planning for this coming tax tsunami.
I knew that this show was at the right time when we first started talking about it because with the government overspending its income the way it is, it can only do one thing and that’s tax its way out is the way that this administration likes to think. At least, that’s what we’ve seen so far. And if that’s the case, than knowing – what’s the line we start with?
Jeff: We say there’s more money. We used a couple. We say there are two tax systems: one for people who know the tax law and the one for the rest of the people.
Patrick: Right, and the more you know…
Jeff: …the more you get to keep.
Patrick: That’s right. The more you know, the more you get to keep. Join us, 214-787-1570, and get your questions answered about the way your business is structured, your estate; all of those types of questions. We’ll be right back.
[commercial]
Patrick: In dealing with the IRS, the more you know, the more you get to keep.
Jeff: That’s right.
Patrick: I always believe that IRS, KGB – they must be the same letters in just either country. Anyways, the biggest thing we want you to know is that if you do know more, you can keep more. That’s what Tax Talk is really all about. It’s for folks that want to basically save themselves some taxes on this coming tax tsunami.
There’s so much to know. Call in, 214-787-1570, or outside the DFW, 800-583-1570, or #KLIF on your Sprint wireless phone. Jeff, in the news this week, an IRS agent got his tail kicked, so to speak.
Jeff: He got his tail kicked. Funny, this IRS agent actually lost in tax court. I’ve got to say, this doesn’t happen. Cases against IRS agents usually don’t happen a lot, so it’s kind of funny to us when we see it happen. What happened is…
Rex: It’s poetic justice.
Jeff: It is. It’s a strange, delicious irony. What we have is we have this IRS agent who was doing eBay sales, first of all. She lost on not reporting thousands of eBay sales. For those of you who listen to our show, you know that this is not going to happen in 2011 because the IRS is coming out with a new form designed to track these kinds of transactions. They’re coming out with a new form, so anybody who’s doing eBay sales, they’re going to be subject to information reporting.
This was in ‘05, and she lost. She claimed that she didn’t know about the tax code, and the tax court said, “Well, in your job, you are especially –you have a great opportunity to know many things about the tax code, and you should in your job.” So, she lost on that.
Patrick: It’s so hard to even keep from laughing because you’re thinking you’re in the enemy’s camp. Duh. You should know their own rules.
Jeff: That’s right. Speaking of knowing the rules, the IRS actually came out this week with how to audit cash-intensive businesses. Why would you want to know the IRS’ guide to auditing cash-intensive businesses? Well, it’s like having the other team’s playbook. If you have their playbook, you’ve got something there.
Patrick: Is that something that somebody could get from your office, Jeff?
Jeff: Absolutely. They’d call our office, 972-378-5200, and we’ll give them a copy of the playbook.
Patrick: Is it emailable? Can they just email you?
Jeff: It’s definitely emailable if you’d like to request it that way.
Patrick: Which would be?
Jeff: jeff@pickeringcpa.com or at jeff@taxtalkradio.com. Either one is going to do it.
Rex: Jeff, so many of the people that I talk to that have cash-type businesses just think, “There is no way the IRS is ever going to catch the fact that I steal from my business.” But, in fact, when you go look at this stuff…
Jeff: They will.
Rex: Yeah. There’s almost no way they can’t get caught.
Jeff: It’s clear that there are ways. Exactly. People who think that they can steal from their cash-basis business are basically naive.
Rex: They really are. I used to tell those people – I used to be in mergers and acquisitions, and that’s mergers, not murders.
Patrick: [laughs] Well, it sounds like it. But, of course, in that field, the guy that’s getting merged, doesn’t he feel like his company just got murdered?
Rex: Sometimes, yeah. But, people would have cash businesses and tell us, “Well, I take a lot of money out of this business, and there’s no way the IRS would ever know.” Without telling us, we’d go back and tell them the next week this is how you’re doing it. Their jaws would hit the floor. We’d say if we can figure it out, trust us. The IRS has people who can figure it out.
Jeff: Right, there are ways.
Patrick: There are ways. Talking about asset protection, we’ve got this seminar. It’s coming up in June.
Rex: Yes.
Patrick: You guys are going to be covering… What all are you going to be covering, and who should attend?
Rex: We’re going to be covering estate planning. We’re going to have a couple of different sessions with Jeff on tax tips. We’re going to be covering some strategies for IRA and retirement planning. We’re going to be covering asset protection. We’re going to be covering entity choice in taxation and management. We’ve got some other sessions with our strategic partners that we’re not ready to tell you what those are, but they’re going to be good too.
People are going to walk out of there with a notebook worth more than $400, checklists of things they can look for; both about their personal estate plan, their asset protection plan, their business plan. They’re going to walk out with stuff that they’re going to be able to use, and if they’ve already got a plan, say, “This is how I stack up on what really needs to be happening.”
Patrick: I also imagine you’re going to have several questions they could ask their own attorney or CPA that would empower them to get great information back. It’s not about you guys. This is not a pitch fest, gang. This is a real value-added, value-delivered, information-intense seminar, so be there. Just be there. Just call. You can call Rex’s office at 972-309-0104 or Jeff’s office at 972-378-5200. I know, Jeff, there are folks that are standing by that can answer.
Jeff: Right. If they’re interested in calling right now, then there’s somebody right there to take them.
Patrick: Very good. One of the things I want to make sure I say, because I meant to say this earlier, during the break we heard that MetroCollegePlanning.com. I am so thankful for those guys. If you’ve got a 9th, 10th, or 11th grader in school, you need to be talking to those folks now, because if you haven’t looked at the cost of college lately, it is an ‘oh-my-goodness’ kind of wakeup call. You’re talking about kids coming out of college after four to five years, usually it’s more like five, with as much debt as if they bought a home. I mean $100,000+. That’s unreal. But, there are ways around that.
Anyways, I know that one of the things that I wanted to talk about, Rex, is the levels of asset protection. I also want to make sure that folks know the number to call in. If you have a question, it’s 214-787-1570 to get your tax and estate planning type questions answered.
Jeff Pickering, CPA, Masters in Taxation. Rex Hogue is an attorney in the North Texas area. He has been 17 years in the business working with estate planning, tax planning; all of those types of things. I know that even his partner, Brad, is a CPA as well as an attorney. They’ve got some real information for you. So, go ahead. I’m sorry. You wanted to go into levels of asset protection.
Rex: One of the things that we started looking at a few years ago is people would come to us and they would say, “I’m well covered. I’ve got a family limited partnership,” or, “I’ve got an LLC already.”
And what we started doing is looking and realizing that a lot of those people have those tools that they think are going to do something, but they’re not structured properly to do what the person wants to do, or they’ve got the wrong kinds of assets in it for it to provide that protection.
So, we developed a system where we classified the asset protection that’s available. The first thing about our system is it requires what we call two-way asset protection. In other words, it has to be a tool that if you’ve got an asset in that tool and something happens, someone is injured, you’ve got a widget company and a widget explodes and hurts somebody, will a lawsuit against that company protect you personally? That’s one aspect of it.
The other aspect is what if you’re in a car accident and sued, and you have a big judgment against you, will your widget company be protected from that lawsuit? So, we only look at tools that provide two-way asset protection, that do both. And believe it or not, there are very few tools out there that do that. But, even assuming that you have one of those tools, it may not be structured properly.
Probably the most common myth out there is that I went and set up my own LLC, and now nobody can get what I’ve got. You could not be more wrong. You can have all the bells and whistles in it, have the best state law, have the best provisions in it, but if you’re the only person – just think about this – does it even sound right that you have complete control over everything, and nobody else can get it? No, it doesn’t.
Patrick: One of the things I’m really curious about, and I want you to talk about this before the end of this show, and that is lots of people out there established these things a few years ago and life has changed, quite honestly. They may have gone through a divorce. They may have had some other life change or business change in the process or maybe even an estrangement from a child or something of that nature.
Those are huge, huge things because if you say, “Well, now I’m remarried and I want all of my assets to go to my wife,” but what if she has children or something of that nature? Then where does the money go after – you could literally disinherit your own kids by accident.
Rex: That’s happened a lot.
Patrick: I know we want to talk a little bit about that. 214-787-1570 if you want to join the conversation. I will tell you, you need to connect to Rex Hogue and Jeff Pickering. Rex, you can catch him at 972-309-0104 or Jeff Pickering is 972-378-5200. We’ve got more coming right after the break.
[commercial]
Patrick: Welcome back to Tax Talk. This is Pat Dougher. We’ve got Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area with Bolinger & Hogue and they’re here to answer your questions. 214-787-1570 if you’d like to join the show today, or #KLIF on your Sprint wireless phone.
What we’ve been talking about is asset protection. I know that there are so many ways to do that, and it gets to be muddy if you really want to think about it from the average person out there. In your opinion, Rex, what are some of the other keys to asset protection?
Rex: Well, we were talking about our levels of asset protection. A lot of people don’t realize this. There are two different schemes that are out there. When we talk about exempt assets under bankruptcy, a person can choose whether they’re going to fall under the state bankruptcy rules or the Federal bankruptcy rules, and they’re different.
So, when people have to declare bankruptcy, they may have some really tough decisions to make about which of those laws they’re going to use. Those are important from an asset protection standpoint because there are a lot of exempt assets. But, we’re talking about assets that are not exempt from bankruptcy under either scheme.
We were talking about, before the break, how when somebody sets up, say, a single-member LLC or they go create a single-member corporation, name it as the general partner, and name themselves as the only limited partner, they now have what they think is a family limited partnership. Really, the fact is if you’re the only one involved, folks, asset protection is purely illusory. It doesn’t really exist to a determined, knowledgeable creditor.
The next level up – we call it level two – it’s the mom and pop. Mom and Dad have a business; maybe it’s father and son. But, what a lot of people don’t realize is if the relationship is so close, then a lawsuit against you means that you automatically pull in the vote from the other person.
You’ve got to remember, if somebody goes to court and wins, one of the things that a judge is going to want to do is make sure that his judgment is enforced in his courtroom. So, he’s not going to ask you whether you have an LLC. If you tell him you do, he’s going to say to you, “Well, I’m going to order you to vote to pay your creditor.”
Well, guess what? If they can compel you to vote, the next question is can they compel your other members to vote? And if it’s your spouse, the answer to that is going to be yes. So, before you even get past the first two levels, level one and level two where it’s just one or two people involved, really, the asset protection there, it doesn’t really exist. We call it a paper mâché dragon. It’s one that can be blown through very easily by somebody who’s determined and knows what to do.
You really don’t get to asset protection until you get to what we call the business level, and the typical thing is you have somebody either non-related or you’ve got enough family members that you can’t compel all of their votes, which means you’re going outside the nuclear family. However, even that can be blasted through.
But, there are structures above and beyond that, what we call starting at level four, which is where in our minds true asset protection begins, where your widget-making company is protected if a widget explodes and it’s protected from the dreaded lawsuit over a car accident.
Real level-four protection begins when you’ve introduced some new things into the mix. They vary from case to case, but we’ve identified the things that you need to have in your plan to know if you’ve got real asset protection. And we can measure it on our scale by looking at, “Here are the elements.”
Sometimes, people – they don’t fall exactly on a level. They’ll be clearly at this level and partially to the next level. They don’t quite make that next level, but we can look at where they are and tell you how much of your assets are going to be protected in the event of a catastrophic lawsuit, which, to a lot of people, that’s the only kind of lawsuit out there. If you’re involved in one, it’s catastrophic.
Patrick: I know one of the things that a lot of people might be asking, because again, this stuff gets about as clear as mud, they want to know if they can call you this week.
Rex: Absolutely.
Patrick: 972-309-0104. And Jeff, it’s 972-378-5200. People are standing by if they want to register for the seminar or anything like that, right?
Jeff: Right.
Patrick: Or connect with you, because I know that tax planning is what you do, and you do it in a way that prepares people to stand against the IRS in a position of strength if they’re ever in a sense accosted by them, so to speak.
One other thing that I’m really curious about – maybe next week we can really dig into what happens if Mom and Dad get a divorce, and then they get remarried to somebody else, but there’s a legal entity that’s been created back here and the nightmares that can occur, because there’s so much more that you need to know about that. I know at the seminar, you’ll be covering a lot of that.
Rex: Yes. As a matter of fact, at the seminar, we’re going to provide a checklist that you can actually go take your asset protection plan, and go look at it on our checklist and figure out where you fall, then you’re going to know what kind of asset protection you truly have.
If you have an attorney who you’re happy with who’s trying to do some asset protection planning, you’ll be able to take our checklist, and go back and say, “Hey, we need to add this part, “or, “We need to add that part to get us where we need to be.”
Patrick: That’s awesome. I know one of the things that I’ve seen, and I know many of the people that have high school students, when they’re going to college, it seems like there’s no way anymore that the kid can stand on his own, that his income…
When I was in college, I just said I was an independent, which I was. I paid for my school myself. Today, it’s very difficult to do that. And so one of the things that I want to make sure that we at some point also cover is are there structures or ways that you can somewhat – I don’t want to say hide because that’s not the right word – but protect those assets from being counted against your child in the future when he goes to college?
If you’ve got a 9th, 10th, or 11th grader, I really encourage you to connect with MetroCollegePlanning.com. They have a solution that can help you make sure that your child gets to go to school. Jeff, did you have anything else that you wanted to add?
Jeff: Keep on tuning in, because you’ll get your worth of information, and you’ll get something that really works.
Patrick: I totally agree. I know so many people, you need to be listening to this every week, same bat time, so to speak, 12:00 – 1:00 Sundays on KLIF. I’m so thankful for today. I look forward to next week when we’ll talk more about estate planning and tax planning to help you know more so you can keep more. We’ll talk to you all next week.
Transcript by:
Lainie Lord
MagiScript
www.magiscript.com

Patrick: Welcome to Tax Talk. This is Pat Dougher, Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area and today we’ve got a special show for you because we’re going to talk about asset protection – real keys for how you can save more of what you’ve earned in your life.

One of the things I want to do is I’ve never really introduced Rex Hogue for who he is and I wanted to take just a minute and talk a little bit about that because on today’s show, Rex has been a guest – actually, a co-host to this show since its beginning and you may not know that he’s a partner of Bolinger and Hogue, a law firm in Frisco.

He got his Undergraduate at Texas Tech. His law school at Regent University. He’s practiced over 17 years. He’s well-known and highly respected in his industry and around the country. He’s a published author. He’s written books like Practical Estate Planning and Biblical Principals of Estate Planning, and a certified Continued Education instructor for insurance agents, financial planners, CPAs, and attorneys.

He really gets out there to make sure that you get your value and he’s been a co-host of the show since the beginning. We’re so thankful for you, Rex, being on the show.

Rex: Thank you.

Patrick: Another thing I just want to real quickly mention is what to expect out of today. Today, we’re going to talk about how you can determine if you’re at risk and that would be literally looking at all the ways that – well, you can get stung by someone else trying to take away what you have, the types of property that you own that may be at risk, the five key rules of asset protection and how to apply them, three types of asset protection tools and then the biggest obstacles to good asset protection planning.

Since we’ve mentioned all that, one of the things I do want to make sure we do go right to is the asset protection workshop we’ve got in May. Rex, I know there’s a lot of stuff that you’re going to be covering, a lot of stuff that you’re going to be giving away during that workshop. Can you tell us a little bit more about what people receive?

Rex: Yes. It’s going to include six hours of instruction. We’ve got several speakers lined up. It’s going to include a nice lunch and the price is for an attendee and one guest. And this is going to be an event, folks, that you don’t want to miss. It’s Saturday, May 15th and we can’t even tell you all the speakers we have yet because we’ve made the deals with them, but we’re not allowed to mention.

Jeff: Can’t disclose yet.

Rex: Can’t disclose yet, but they’re going to be really good speakers. We think you’re going to have a really great time and learn a lot.

Patrick: Very good. Well, I know that you’re expecting that they’re going to receive over $400 worth of value. What are some of the things you’re going to cover during that time?

Rex: Well, we’ve got several things lined up. The seminar workbook itself is going to include over $400 and, really, that is way under what we anticipate. The various reports that we’ve talked about, pretty much all of them are going to be included.

We’re going to include checklists that you need to work with so you can go check to see if the planning that you’ve put together is on there. And then, Jeff, tell us a little bit about what you’re going to talk about. We’re going to have some tax tips from you in there.

Jeff: That’s right. I’ll be doing tax tips on how to avoid or have them take less of the Medicare tax ,and we’ll talk a little bit about IRA planning, and we’ll talk about entity selection which is always a fun topic. I don’t know if there’s anything more fun than tax planning, but that’s what we’ll be talking about.

Rex: You and I think that. There are probably other people out there that think other things are more fun.

Jeff: That’s right.

Rex: We’re also going to talk about estate planning ideas, how to setup your estate plan, what tax issues you need to address. We’re going to be talking about asset protection planning. We’re going to have a special session; it’s going to be a joint session with our office and Jeff on business entities, how to select the appropriate entity, how to make sure that you’ve chosen the entity that’s right for your company because, Jeff, I’m sure you see this.

We see tons of people that they incorporated years ago, they never should have used a corporation to begin with, because of the type of assets that the corporation holds, and it is now extremely difficult. There’s no cheap way out. Better entity selection on the front end would just have made a huge difference for those people.

Another thing that we’re going to do, our last session in the afternoon, is going to be for people who have things like family limited partnerships and limited liability companies; a session on care and feeding of those entities, how you maintain them properly to survive attack both from the IRS and potential creditors and some income tax strategies that, in our experience, most people have these never take advantage of and they’re out there. They could do them and our experience is a lot of people have those and they do absolutely nothing to maintain them.

Jeff: Fail to take advantage of the entities they have.

Rex: They don’t take advantage of them, they don’t use them properly and the end result is that those entities don’t do nearly what they could be doing.

Patrick: Isn’t that going to be a pretty important thing though in the future even that when you sit there and look at the way Obama is setting up the taxes, it’s going to cause a lot of people to want to start new entities. I think you guys had talked about that before.

Rex: That’s correct.

Patrick: And having the right one in place would be a real value, wouldn’t it?

Jeff: Absolutely.

Rex: Absolutely.

Jeff: One of the coping strategies you’re going to have to use to deal with these higher rates.

Rex: Also, one of the things that we’ve seen is when the economy goes south, one thing that picks up: litigators are busy. People tend to sue more because, “Hey. I’m not doing as well. It must be somebody else’s fault.” So, they tend to sue more often.

So, the people who do have assets need to think more about asset protection in tough times and that’s really been our experience. We’ve seen in our practice, this economy is taking a real hit on people doing the routine planning that we do, but what we’ve seen is an increase in the asset protection planning.

Patrick: Well, it’s going to be a real key. A lot of you may want to get in on this conversation and ask these two about your estate planning. Is your LLC setup correctly? Is your will, essentially, or what are some of the insider secrets for avoiding a lot of taxation after someone that you love passes away? So, call in at 214-787-1570 or 800-583-1570 if you’re outside the DFW area or #KLIF on a Sprint wireless phone.

Now, one of the last things I do, before the break, is really ask about how do people register for this thing? And you have a special offer for today.

Rex: We do. First of all, let’s talk about the cost of it. It’s going to be $79 and you can bring one guest. That will be through May 10th. If people have paid by then, that’s the cost, after that it’s going to be $99.

Now, May 10th is that Monday. So, they have until the Monday before the seminar on Saturday to sign up and take advantage of that $79 price, but for one week only – we announced last week that this was going to be a one day – but the people we’re doing the seminar with, who we can’t yet announce, are not going to really hit this until next week.

So, for one week only, we’re going to do $59. You have to sign up by Friday and you can sign up by calling our office 972-309-0104 and sign up or email me at Rex@bigtexlaw.com or even go to our website BigTexLaw.com, contact us and then, Jeff, they can also sign up through your office.

Jeff: That’s right.

Rex: But, you won’t be there all week.

Jeff: Right. We’d like to take our reservations through Thursday.

Patrick: And they would do what? Call your office?

Jeff: Just call our office and even if they wanted to right now, they can call right now at 972-378-5200.

Rex: We also have someone at our office right now.

Patrick: So, either 972-378-5200 or 972-309-0104. And we’ll be right back.

[commercial]

Patrick: And welcome back to Tax Talk. This is Pat Dougher. If you were listening during the commercial, you heard about MetroCollegePlanning.com. I encourage you to check that out. I’ve been to their workshop, and I do have kids in school, and I was stunned at how much information they provided for free and then even beyond that, how they can get you funding for your student, your high school student in college.

And I don’t know about you, but I have one in college right now, guys, and oh goodness – it costs more than any of us would have thought. When we went to school, it was a lot. Now, it’s lot more. So, you ought to check that out. Speaking about expenses and giving, goodness gracious.

Jeff: Yes. President Obama and the Vice President Joe Biden have released their tax returns, as all Presidents and Vice Presidents do. So, we have a look at this and the first thing that is stark, that stands out, is the giving. So, the giving of President Barack Obama, and especially Joe Biden, is very low compared to what you would expect.

Patrick: Expect? What do you mean? Expect by whose standards?

Jeff: Well, by other Presidents. We have, for instance, President Bush. His last year in office, President Bush, especially Vice President Cheney, were very charitable people. They never went around and trumpeted how much they gave, but Vice President Cheney gave 77% of his adjusted gross income in 2005 to Hurricane Katrina just because there was a special tax law at that time that allowed him to give more. So, 77% of his income he gave away to the Hurricane Katrina people.

Rex: Now, how did Joe Biden do on that?

Jeff: 77% for Cheney and then Joe Biden, his largest was last year. He doubled his to 1.45%.

Rex: Doubled that.

Patrick: 1.45%. Wow. The guy’s generous.

Jeff: So, his prior year was less than a percent normally and sometimes less than a tenth percent for the Vice President.

Patrick: Well, how did the Presidents do?

Jeff: President Bush – last tax return in office, he didn’t have to impress anybody. He gave over 17% of his adjusted gross income.

Rex: It was just under 18%.

Jeff: Under 18. Thank you. Of his adjusted gross income to charity and then President Barack Obama gave 6% exactly last year.

Patrick: But, didn’t he get some large book sales or something?

Jeff: Oh yeah. His income was $5.5 million. And by the way, we’ve got Barack Obama’s giving all the way back to 2000. He gave as low as 1% of his income back in 2000.

Patrick: So, it’s not his money he wants to give away. It’s our money that he wants to give away.

Jeff: So, he’s really good at giving away our money, but not as much his own for both of these guys.

Rex: Funny how when they’re more charitable, they less willing to give other people’s money away. Isn’t that odd?

Jeff: Amazing.

Patrick: Amazing. Well, I know many of you want to ask some questions to both Jeff and Rex. It’s 214-787-1570 and a lot of people might be wondering, “Well, I don’t need to protect my assets unless there’s something missing there.” I know, Rex, you guys have actually developed a strategy for asset protection. How did you develop that strategy?

Rex: Well, we started looking at asset protection many years ago when people told us they were concerned about lawsuits. When you go through law school, you read all these cases where you have a swimming pool and you got sued because somebody got hurt in it.

So, what we started doing was paying attention to the kinds of lawsuits that are out there and the kinds of issues that our clients were facing and really cataloging them. That’s something that we don’t know of many firms that have done is actually go to the trouble to catalog the kinds of risks.

And we developed a checklist that people can go through and say, “Here’s the things that you have that may cause risk both in your personal life and in your professional life and here’s the kinds of assets that might be at risk.” We’ll talk about the types of assets at risk a little later.

Patrick: What would be some of the keys to the checklist because I know you’re going to give that away at your workshop, right?

Rex: Yes, we are. But, really, there are three questions that we tell people you need to ask. Number one: are you considered an attractive target for a creditor or a litigation attorney and is it worth the time and money for them to attack you?

We’ve all heard you can sue anybody for anything. All it takes is a big chief legal pad and a pen and a filing fee, but the truth is, for a litigator, it costs a lot of money to bring a lawsuit. Somebody has to pay for that. A litigator is not going to do that generally unless they believe they’re going to collect. And if they can’t collect from you, your chances of being sued are not all that great.

The second question is if your assets are exposed to a lawsuit, how much exposure are we talking about? For example, you may own cash, which is very attractive to a creditor, but if you live in an assisted care facility, you don’t drive a vehicle, your chances of being sued are very low. So, the asset you have at risk has a high risk of loss if you got sued, but your risk of getting sued is low.

Other people may have assets that are maybe not as easy to get in a lawsuit, but their actual lawsuit risk is a lot higher. So, you have to evaluate both sides of that.

Another thing that we have people occasionally tell us, “That particular asset is just not that big. I’m not that worried about it.” So, we’ve learned to ask this question, “It’s at your age, can you either survive without the assets or are you willing to start over?” And that puts things in a different perspective because people often think, “Well, it’s small. It wouldn’t matter if I lost it,” but when you ask them, “Could you live without it?” “Oh, well, wait a minute. No, I can’t.” All of a sudden they want to protect it.

Now, some of them do say, “Yeah, I could live without it. It’s not a big deal,” and that’s okay. That’s a strategy, but those are the questions that you typically want to be asking.

Patrick: What type of property would you usually see at risk?

Rex: Well, we classify property in three ways, but let’s talk about the things that are exempt from lawsuits and this does vary from state to state. In the state of Texas, for example, nobody’s going to take your homestead unless you don’t pay your mortgage or maybe your HOA dues. You can lose it for that as well, but life insurance policies, cash value of life insurance, annuities, wedding ring set, two firearms, a vehicle for each driver in the home.

We recently had a really interesting case where one of our attorneys was out at a client’s house at night because an attorney showed up with two constables to take a vehicle that was exempt and, basically, we had a three hour standoff, but at the end of the day, they walked away with nothing because this vehicle was exempt and our attorney was explaining, as nicely as he could, to these constables. “Guys, you are about to commit a crime.”

And he told the other attorney, “You’re about to participate in a crime pal. You’ve got a license. It’s not career enhancing.” And ultimately, they did back down. Sadly, the client is out a lot of money protecting what never should have been an issue.

Patrick: So, these are some of the strategies that I know you guys are going to be covering for your asset protection workshop. Tell us a little bit more about how we can come to that and the special for the day.

Rex: Again, the seminar is going to include over $400 of material. We’re going to talk about tax tips, estate tax planning, IRA planning, asset protection planning, business entity planning, and the family type entities.

The cost is $79 up through May 10th and it is $99 after that, but for one week, through this week, if you sign up and pay by Friday, it’s $59. They can call our office 972-309-0104 or call Jeff’s office at 972-378-5200. Jeff’s office is only going to be open until Thursday. You guys are having a…

Jeff: We have to do an after tax season strategy. Basically, it’s a postmortem.

Rex: Go into the light, right?

Jeff: I think that’s what we’re going to be doing. So far, that’s what the vote is. We usually do it at a restaurant, but this year, so far, everybody has been voting for the lake.

Rex: Right.

Patrick: That’s really good. One real quick statement. Who’s the ideal client or person that you really are trying to attract to this?

Rex: Well, really, business owners are always people who need information. Anybody who has an IRA of at least $150,000, $200,000 or more, they don’t want to miss this. And when I mention those numbers, I mean combined between husband and wife and anybody who has a fair amount of investment assets, even if they’re an employee. They want to be at this seminar.

Patrick: Very good. Well, if you want to join the conversation 214-787-1570. We’ll be right back.

[commercial]

Patrick: Pat Dougher, Rex Hogue, Jeff Pickering and you. Call us at 214-787-1570. I’d like to hear if you’ve ever been sued and the reason why I’m asking about that is because – well, the probability of you, if you own a corporation, getting sued is pretty high. Rex, what’s that number again?

Rex: Well, statistically, the average person is involved in seven lawsuits during their lifetime. Of course, there are some people who are never involved. That means there are some who are involved in way more than seven. There are some business owners that are in businesses that just attract lawsuits, so they’re driving the numbers up for everyone else.

Patrick: I guess you know a few like that.

Jeff: Sure. I’ve got a client who’s just regularly sued and it doesn’t bother him except the only time it really bothered him was when the IRS came knocking. I actually wasn’t doing his books at that time, but I inherited him from another CPA.

So, the IRS audit actually was the thing that made him nervous. But, most people, when they are involved in a lawsuit, it is just draining. My clients that I see are involved in lawsuits.

Rex: We talk about a lawsuit being a more civilized form of warfare. If you think about it, nations bleed men, equipment, money, and national pride. Families bleed money, emotional distress, and family pride. It’s really kind of the same things except without the blood, hopefully. But, it’s very stressful. Most people would rather go kick porcupine barefooted than be in a lawsuit. It is no fun. It’s extremely stressful.

Jeff: Even if you’re right.

Rex: Even if you’re right. We’re going to talk about that. A lot of times you can win, but you still lose. Having successfully defended yourself makes you feel good until you realize, “I’m not getting any of the money I used to defend myself back.” It’s a waste, but another thing – I’ll give you an example.

If you’ve got a doctor, who you’re going to go see next week, who you don’t know, and you go home and read the paper today and discover “Dr. So and So sued for malpractice.” The chances are really good you’re going to cancel that appointment.

Now, when it’s later determined that that doctor did absolutely nothing wrong, does that show up on the front page? Of course not. So, their business still suffers and it’s just a very stressful thing to go through and sleepless nights; people don’t eat right. A lot of things go wrong in their life because of the stress of a lawsuit.

Patrick: I wouldn’t doubt it. I know we’ve seen it even – I think all of us have been through something like that and what’s bizarre is many times you win; all you win is the attorney’s fees being covered, essentially, at some point.

Rex: Well, you don’t often even win that unless it’s a breach of contract case where attorney’s fees are part of it. You don’t get attorney’s fees back. You have to pay to defend yourself.

Patrick: Right. 214-787-1570. Asset protection may not seem like it affects you, but I would challenge that. Jeff?

Jeff: I think anybody that’s been in business and by the way – just as an aside – I hope that everybody is – tax season is over. We’re done reporting the history, but the good reason to listen to this show going on is how to get yourself ready all throughout the year.

We’re going to be talking about asset protection. We’re going to be talking about tax strategies. We’re going to be talking about the meat and potatoes of how to make yourself more bulletproof and pay less taxes.

Patrick: And that’s going to be pretty huge in the next few years. This is about developing and implementing a strategy that makes you invisible to the IRS to a great degree. You’re not going to popup on a radar screen or if you do, you’ll know how to protect yourself. Is that right, Jeff?

Jeff: Well, I always recommend that if you like the deduction take it, but be ready to defend yourself and that’s the way we do things. We’ll be talking about, for this show, more asset protection.

Next show, we’re also going to be talking some more about it and get deep into it. So, if you’ve been in business, it’s likely that you’ll be involved – it’s just a matter of time before you’re involved in a lawsuit. It may not be as a defendant or a plaintiff. You may be just dragged in as…

Rex: Third party.

Jeff: Third party.

Rex: Happens all the time.

Jeff: That’s right.

Patrick: Well, I know that a lot of times you don’t even realize how small of a company you might be talking about. Somebody might have an employee or three employees, but they’re generating over a million dollars a year in income. You’re a bit of a target even though you may not be taking that much of an income out of it.

Jeff: Like risk insurance. You don’t have to have a lot of assets. You don’t have to be a big business.

Rex: That’s right. If you get in a car accident, one of the things they can always go after is the insurance and you can wind up being sued simply because you have insurance. Now, don’t go out and cancel your insurance, folks because that covers the cost of your defense and it pays some of those claims.

But, believe me, if you have insurance, there’s people out there who will sue you simply in the hope that they can collect from your insurance company and simply hoping that the insurance company would rather pay than litigate because it’s cheaper.

Jeff: And it’s all stressful. Even if you have the insurance, it’s all stress.

Patrick: Wow. 214-78-1570. I’d love to hear from you if you’ve been through some litigation. What happened? What were some of the processes and maybe even, what are some of the things that Rex or Jeff could give you some insight on how you could have maybe done it a little differently.

Jeff: Well, Rex would be the authority. I watch the stuff happen to my clients and I participated – I help them. I’m an advocate for my clients, but Rex is really the authority in the lawsuit and asset protection area.

Patrick: That’s right and one of the things I do want to make sure, how can people attend your workshop?

Rex: They can call us at 972-309-0104. They can email me at Rex@bigtexlaw.com or they can go to our website BigTexLaw.com, click on contact us and send us an email and signup. Again, that seminar is going to include over $400 of stuff, tax tips, estate planning, IRA planning, asset protection planning, choosing a business entity and the care and feeding of your limited partnership or LLC. $79 through May 10th, but this week only through April 23rd at 5:00, it’s only $59.

Patrick: And that’s for you and a guest or spouse.

Rex: For you and a guest, and it does include lunch.

Patrick: Very good and they can also call Jeff. They can call your office at 972-378-5200 right?

Jeff: Right.

Patrick: Very good. I know that you don’t want to miss this folks. You want to make sure that you attend. If you’ve got an IRA between you and your wife and it’s only a couple hundred thousand dollars, there’s some real need.

If you’ve got insurance on your corporation – it’s kind of an error and omission. Well, let’s face it. We all make mistakes. It could be the teeth that actually…

Okay, we’ve got a call on the line here. It’s Mel. You’re on the air. Go ahead.

Mel: Good morning, guys. Quick question. I was a former small business owner. I was a sole proprietor. I want to open up another business and file an LLC. Two people have told me two different things. One of them is that an LLC doesn’t fully protect me from lawsuits being that the veil can be pierced.

Another person has told me that insurance is the best way to go [37:48 inaudible] the LLC. Can you give me any insight into what they’re talking about?

Rex: Mel, there are so many issues involved. Unfortunately, I can’t give you just a plain, straight out here’s the best way to go, but typically, when we run into somebody like that, we’re going to look at what kind of issues do they have? What kind of business are they talking about? Does it lend itself to getting insurance. LLCs vary as much as houses. There’s tar paper shacks and there’s mansions.

An LLC that is properly designed, in our opinion, will do a great deal to protect you from lawsuits, but a lot of people don’t set them up correctly. They’ll make them single member LLCs, which really don’t provide a lot of protection contrary to the rumors out there.

So, a lot depends on how exactly you structure the LLC. Even if you have the LLC, the insurance is still, usually, a good idea because that gives the other side something that they can walk away from and not continue the lawsuit.

Jeff: Mel, it would be a really good idea to sign up for this seminar because one of the sections we’re going to have is on entities and how to set up.  Rex and I will be talking about how it works and even after then, which entity you use may depend on your personal circumstances.

Rex: That’s exactly right. Good point. Jeff.

Mel: Can you give me the number? Can you repeat the number again? I’m on 45 heading north from Houston to Dallas, so I’m trying not to drive and write and do this type of thing, but just can you repeat it for me?

Patrick: You’ve got it. I’m going let you listen offline. Okay?

Mel: Okay.

Patrick: Thank you so much, Mel. Yes, you can call 972-378-5200. There’s someone standing by right there. Or 972-309-0104. We’ll be right back.

[commercial]

Patrick: And welcome to Tax Talk. This is Pat Dougher. We’ve got Rex Hogue, Jeff Pickering. We’re talking about asset protection and one of the things I just want to make sure that you guys – you heard that metro college planning. You need to check them out. If you’ve got a high school student, they’ve got some upcoming workshops this Tuesday and Thursday, and then also each week, they’ve got a couple of them.

If you’re in Dallas, hit button A. You’ll understand that if you go to MetroCollegePlanning.com or if you’re in the Fort Worth side, hit the button B and check them out. Go and get some money for college because your kids – it’s so expensive. I just had to press that because they’re sponsors and I appreciate all that they do.

I know that when we’re wrapping this thing up today, we want to make sure that you know when and where this workshop is on asset protection. I know it’s May 15th.

Rex: May 15th. That’s a Saturday. It’s going to be at Lincoln Center, which is at 635 and North Dallas Parkway.

Patrick: So, just south of the Galleria.

Rex: Just south of the Galleria. Again, it’s going to include over $400 of information in the workbook. It’s going to include lunch. We’re going to be talking about tax tips, estate planning ideas, IRA planning, asset protection planning, a session for current and prospective business owners on how to choose the right entity, and then care and feeding of your entity.

The cost is going to be $79 up to May 10th and then it goes to $99, but this week only, if you signup and pay by 5:00, $59 if you call Jeff’s office or my office. And Jeff, what’s your office number again?

Jeff: 972-378-5200.

Rex: And ours is 972-309-0104.

Patrick: Very good or they can email you at Rex@bigtexlaw. I will encourage you to be at this. It’s going to make a big difference. If you’ve got assets to protect or you’ve got a company or you have a question about what kind of entity to set up, I’ll tell you, setting up the right entity is going to mean everything in the next few years because I am pretty certain that Obama and his administration is going to find a new way to tax you.

Rex: Yeah. And just as an example, we had a caller a while ago, Mel. Mel would really benefit from this because we’re going to talk about and try to peel away some of the myths out there about estate planning and choosing entities and how it actually works.

And a lot of times after we’ve taken clients through the educational process, they discover that there’s a lot of people out there who only give partial information. They don’t really give them the whole picture and that’s what we’re going to do is give you the whole picture.

Patrick: Very good. As we’re coming down the homestretch here, what are the five key rules of asset protection?

Rex: I’m going to share these by sharing two case histories. The first one is Ed and Sandra had a lake house. Their next door neighbor had a little boy who wandered over to their house and when Ed and Sandra were not there, a thief broke into the house. The little three-year-old boy wandered in, found some fire ant bait and ate it and died.

And they sued Ed and Sandra because Ed and Sandra – there are three rules that apply here. One, they owned the property that caused the liability. They didn’t go after the thief. They go after the owner. Number two, you can always get to the owner of the property and number three, you can always get to what the owner owns.

So, Ed and Sandy lost a huge amount of money from stuff that they had including their lake house. It was what they enjoyed doing on the weekends.

Another case that’s a little bit different, but it shows us some other rules. A business owner had a secretary one day go over to the mall and buy his wife something nice for her birthday and he told her, “Take my vehicle. This is a personal matter.”

And on the way back, she hit a 45 year old bicyclist who turned out to be a neurosurgeon making over a million dollars a year. 45 years old; he’s got 20 more years to practice. He died.

When the doctor’s family hires a PI lawyer, which they’re almost bound to do, they’re going to be able to get to the business owner. They’re going to be able to get to the secretary. They both have car insurance, so they’re going to get to both of those and the business owner is liable because it was his employee and it was his car. And even if it hadn’t been, it was a trip for his benefit.

So, the difference is that that business owner had things setup correctly and, yeah, the car insurance paid off, but he didn’t lose everything else.

Patrick: Wow. So, what are the five keys then that you’re illustrating there?

Rex: Basically, that if you own property, you can lose that property if it causes a liability. You can always get to the owner of the property. You can always get to what the owner owns. You can get to the operator of a property and you can get what the operator owns.

So, if you understand how those five rules work, it’s amazing how much you’ll know about asset protection that even most lawyers don’t know.

Patrick: Very good. There’s someone on the line. I’m going to ask him real quick. Go ahead. Norman, real quick. You had a good question.

Norman: I’m a real estate investor, kind of a beginner and I read the Robert Kiyosaki books and he always said that you have to be able to read the numbers, and balance sheets and stuff like that. I wanted to know if there are any books. How would you go about learning – I don’t want to know in depth, like try to be a CPA, but just good enough to know when I have a good deal and don’t have a good deal.

Jeff: Norman, I really like the Wall Street Journal guides to money and investing. So, those are my personal favorites. They’re very authoritative and easy to read.

Patrick: Rex, do you have any?

Rex: There’s a book out there I read years ago called How to Read Financial Statements. I read it about 25 years ago. It was, I thought, excellent, but kind of boring. I liked it, but most people might find it kind of boring. It’s kind of dry, but it did explain it very well.

Patrick: Thank you so much, Norman. We’re almost out of time for this show, so I want to make sure people know they can get a hold of you guys. You both are local. I do want to encourage you to get a hold of Rex at Bolinger and Hogue. It’s 972-309-0104. They’re estate attorneys.

We’ve got this asset protection workshop. It’ll make all the difference if you go, especially if you realize that the probability of you being sued is more than you’d like to know. So, call 972-309-0104 or Jeff Pickering’s office at 972-378-5200. And again, we will be talking about asset protection next week. You won’t want to miss it. This is Tax Talk with Pat Dougher. Thanks for this week. We’ll see you next time.

Insider information on the ways to save the most on your taxes. Here this show live Sundays at Noon on KLIF 570am.

Patrick: And welcome to Tax Talk. This is Patrick Dougher. We got Jeff Pickering, Rex Hogue in the store today and you can get your questions answered on taxes. We have a big deadline coming up just in a few days, don’t we Jeff?

Jeff: Mighty deadline. It’s a huge deadline. Maybe it’s the biggest deadline of all for people that prepare individuals and businesses. There are several deadlines. So, let’s talk about what happened actually.

We have Tax Freedom Day. Happy Tax Freedom day, Pat. Happy tax freedom day, Rex. Woo-hoo! Yay! Okay, it happened on April 9^th and, of course, that’s the day when you stop working for the government and you get to keep the money after that. So, Americans will pay more taxes in 2010 than they will spend on food, clothing, and shelter combined. Just a little fact for you.

We have April 15^th coming up and although there are some normal deadlines, I want to point out some deadlines that people might not realize on April 15^th. So, we’ve got the individuals partnerships, trusts, your first quarterly payments if you’re a quarterly payer. Extensions – the rule is extend, don’t amendd. So, extend don’t amend. File a complete and accurate return, pay the amount due if you’ve got to, and then extend.

Property tax renditions for the people that are business owners, remember to get that in because there’s a penalty. It’s a deadline to claim a refund from 2006 taxes so if you got anything, possible refunds going out from 2006, make sure you get those in by April 15^th because the statute is running right there.

Mark-to-market elections we talked about for those people who are heavy traders and they want to protect themselves in case of a down market.

NOL carry backs if no extensions –this is important. Usually, we say if you lost money or if you’re getting a refund, it’s not so important to file an extension. Okay, that’s not the case this year.

The case this year is if you really, really lost money, do file and extension because you might be able to carry that loss back to another tax year that you made money and you’ll get some cash back. You can make money out of your losses. So, it’s very important to file an extension, especially if you lost a lot of money this year.

1031 exchanges – we’ve been talking about them. There’s a little rule about 1031s; tax free exchanges. You got 45 days to identify, 180 to close, but the little rule is if the 180 to close, if April 15^th falls before that 180 days, you’ve got to close by April 15^th unless you file an extension.

Patrick: Sweet.

Jeff: So, if you’ve got a 1031, a tax rate exchange, remember to file an extension if you haven’t closed yet.  Haiti and Chile contributions – you can deduct them for 2009 even though you pay them in 2010. It’s the last day to fund your traditional and Roth IRAs and the last day to fund your health savings accounts.

Patrick: Very good.

Jeff: So, just a couple of more. Now, April 30^th is your day to have a binding contract for a homebuyer credit. You’ve got to have a binding contract and enclosed or have a certificate of occupancy if your self-constructing or if you’re having it built by June 30^th. Then, May 15^th is franchise taxes. Okay, sorry.

Patrick: No, it’s good. You know one of the things that a lot of people don’t realize about you, Jeff, is that you’re a specialist in preparing a tax return in a way that, well, it’s kind of what? Audit-proof almost?

Jeff: Well, I like to prepare returns as if they’re going to be audited. I like to do that so that we can all sleep well. Me too; me included.

Patrick: Right.

Jeff: I want to sleep well at night. My clients want to sleep well at night. Anything that we do, we document and do it ahead of time because, the reality is, if you’re going to be audited, you’re probably going to be audited in a couple of years. You may not remember everything you were talking about a t tax time.

Patrick: Right.

Jeff: Two years ago.

Patrick: Well, that just one of the things that I’ve sat there and I’ve seen you do my return and I was blown away at how well you did it and it was just really important to sit here and say, “Look, if you’re needing your taxes done then you should go to Jeff.”

Now, one of the things a lot people don’t understand is that you may be too late to get anything other than an extension. And you do extensions…

Jeff: For free.

Patrick: For free.

Jeff: Right.

Patrick: So, to get an introduction, you can call Jeff – I hope you guys do – at 972-378-5200 and his location is 6533 Preston Road. It’s up in Plano and I hope you guys connect. Rex, you have some exciting news with a new asset protection seminar, right?

Rex:  Yes, on May the 15^th. I know this has been announced. We tried May 1^st, then May the 8^th, but now we’ve set on a date, May the 15^th. It’s going to be an outstanding seminar that you’re not going to want to miss. We’re calling it an asset protection seminar for lack of a better name but it’s going to be way more than that.

Our first session that morning, we’re going to have Jeff talking about tax tips. He’s going to talk about the new Medicare tax. We’re also going to cover estate planning and some strategies for IRA and retirement planning in the first session. Now, there are more sessions. We’ll talk about those as we go throughout the day, but that’s coming up.

We’ve set the cost. It’s going to be $79 a person. Look for a one day special on that coming next week. We’re excited about it. We have got an outstanding lineup of speakers.

Patrick: I’ve looked over this and, I’ll tell you, there will be tremendous value. Honestly, it’s going to be a $600 – $800 value that you guys are rolling out for less than a hundred. So, it’s great.

The one thing I do want to encourage you, if you’re filling out your tax return, which is probably happening to a lot of people today, you may have some questions and I encourage you to take this next 48 minutes or so and call and get some of your last minute questions answered at 214-787-1570, 800-5831570 if you’re outside the DFW area, or #KLIF on your Sprint wireless phone. Rex, did you have something else?

Rex: Yes. My partner is actually standing by in our office now to answer questions about estate planning. That number is 972-309-0104. Brad Bolinger, who was here last couple of week, is there ready to take your calls and answer any question you may have.

Patrick: And we’re really thankful. He’s gotten several calls. It’s been really valuable. For someone that has an estate tax planning type of situation, what better time to call than when the guy is standing by saying it’s free?

So, by all means, do that. 214-787-1570. And I know that we wanted to talk about, real quickly mention there’s a new tax on the horizon; like that’s a new one. This generation skipping thing?

Jeff: Well, it’s been around. It’s been around, but it gets people who are not aware of it.

Rex:  Yeah, the generation skipping tax is a tax that applies to gifts or distributions made after death to grandchildren or someone other than your children who are more one generation away.

And it’s an additional tax. It’s not the estate tax. It’s a tax in addition to the estate tax. It’s called the generation skipping transfer. We’ll talk about that when we come back from the break because there’s some kind of interesting stuff about it this year.

Patrick: I hope you guys join us right after the break. We’ll be right back.

[commercial]

Patrick:  And welcome back to Tax Talk. This is Patrick Dougher with a great show going and if you want to join us, it’s 214-787-1570 to get your answers to the questions you have on your taxes this year.

I know many of you are filling out your forms and you’re trying to figure out, “Well, what does that mean?” In fact, I know Rex you were talking about there’s just a little confusion on essentially the definition of some term of a person. What is that again?

Rex:  Yeah, it’s actually an example of how simple the Internal Revenue Code can actually be. What we’re talking about this generation skipping transfer tax. It’s worth pointing out that Internal Revenue Code Section 2613B defines a non-skip person as any person who’s not a skip person. It didn’t get easier than that. That’s a very simple definition.

Patrick:  That’s as clear as mud.

Rex:  It’s just nobody knows what that means, really. It would be really helpful if skip person in the Internal Revenue Code wasn’t the exact opposite of what you think. It’s not the person being skipped, it’s the person being skipped to, but they’re called the non-skip person. Don’t’ ask me why.

Patrick:  Yeah, that’s as clear as mud. Hey, Brian we’ve got you on the air. What’s your question about the LLC?

Brian:  Yes, I formed an LLC last year on January 1, 2009 here in Texas and didn’t do anything with it. So, I was planning on dissolving the LLC with the state, but I was just wondering if there was any tax consequences I had to resolve with the IRS first or anything?

Jeff:  Brian, did you apply for Federal ID and did you start paying wages or say that you were going to?

Brian:  No, I did not apply for federal ID and I didn’t have any employees. I just didn’t do anything with it at all.

Jeff:  Okay. Well, then it sounds pretty safe. It sounds like a safe thing to shut it down. You know, Brad, Rex is right here. We’re both in the room. We both were talking about LLC’s right before you came on the air. And my clients like to shut them down. They like to formally shut them down but, Rex?

Rex:  Yeah, we have clients who may be in a case like yours where they haven’t actually used it for anything. You can just let it expire. If you don’t file the tax return due to the state, which is just an informational return, they will revoke your corporate privileges and it will be done. And if truly nothing was done with it, that’s cheaper than going to the trouble of shutting it down.

Jeff:  It actually shuts itself down.

Rex:  Yeah. Shutting it down is safer. And Jeff, there’s another interesting alternative that you mentioned a while ago.

Jeff: Right. Brian, I want to throw this out and that’s that you might not want to shut it down. If you can keep it open for very cheap because aged companies actually go for a lot of money – well, not a lot of money, but some money. So, I’ve seen aged – like and aged LLC will go for a couple of thousand dollars. So, you may have something that’s actually worth something.

Rex:  And what are they looking for, Jeff?

Jeff: They’re looking for exactly Brian’s situation where a company has been in business and hadn’t done anything because – I hate to say this – but the people that buy these aged companies are usually crooks. They buy them because they’ve been in business for a long time and haven’t had any complaints against the Better Business Bureau.

Rex:  So, they’re going to participate in an activity to create those complaints.

Jeff:  Exactly. So, if you sell your aged company, you want to make sure you’re completely out of there because you don’t know what somebody’s going to do with your aged company. But, they are worth money. You can look on the Internet. You can Google search ‘aged corporation,’ ‘aged LLC’ and there are people out there that sell them for thousands of dollars.

Rex:  And not all of them are crooks.

Jeff:  Not all of them are crooks.

Rex:  But sadly, there are a bunch of them out there.

Jeff:  That’s right. So, there you go Brian, long-winded, but there you go.

Brian:  Well, thank you all very much.

Patrick:  Hey, thanks again, Brian. And with that 214- 787-1570, you can get your answers to the questions that you have on your taxes. So, we want to give you the opportunity to call and talk to these two. They’re here to answer your questions.

They’re very professional in all they do and they do charge for their stuff at the office, but they don’t charge for it on the air. So, you got the opportunity to get some really great advice and counsel that’s here on the air. And again, that’s 214- 787-1570.

One of the things that I want to bring up though is a lot of people might be using Turbo Tax and I understand that there are some kind of problems with Turbo Tax. What is it, under estimating? What is that Rex?

Rex:  Yeah. What’s happened is Turbo Tax has a flaw in it that is causing people to under pay their tax and one of the things that we talk to our clients about is trying to reduce your audit profile.

Well, if you’re using Turbo Tax and it’s going to print out a nice neat form that looks like it’s done on a computer. It’s going to go to the IRS and when you sign on as your own personal tax preparer, the IRS is probably going to suspect that you used Turbo Tax and that’s going to put you in a higher audit risk category because of the possibility of under payment of taxes.

And what Turbo Tax did is they didn’t send out a general warning to all these people. So, one former Federal employee – there’s one in every crowd – decided to go point this out to the IRS because he didn’t want millions of tax payers to be able to get a benefit.

It’s particularly applicable to people who have their healthcare premiums connected to some type of retirement plan. And that will be a lot of retirees. You know their former company is still providing their plan or whatever.

So, now that’s going to be an audit risk and, Jeff, what’s interesting to me is people use Turbo Tax instead of someone like you and, really, this is just an example of how that can actually be a bad idea. I know if you were to get up here and say that, you’d sound like you’re just tooting your own horn. But, that’s really not the case here.

Jeff:  What’s really the case is if you get a monkey keying in stuff into Turbo Tax and I mean, if you don’t have any knowledge about what exactly you’re doing, then keying in is not a good solution for you.

Patrick:  Very good.

Rex: That’s right. It requires knowledge to prepare tax forms.

Patrick:  That’s good. Michael, you’re on the air. You have a question?

Michael:  Yes, I do. My wife and I have built a home in the country in the Milam County, an incorporated area here in Texas, and the home was paid for as we’ve gone cash on the barrel head and we would have no certificate of occupancy – none required there. We have no settlement statement, no HUD settlement statement; nothing like that.

I’m trying to determine what exactly I would need to send to the Federal government when I file my return to qualify for the homebuyer credit?

Jeff:  Yeah, Michael. That is great question. I like that because it challenges what our traditional notions of what the rules are supposed to be or what you’re supposed to do for the rules. So, the point about the certificate of occupancy is that you’re actually able to use it and live in it, and it’s to be used as it was intended.

So, you’re going to have to prove that in other ways. One of the ways I can think of to do it is you can document with photos. You can ask an inspector to come in and give his inspection and show that everything is working right.

I like the inspector idea better because it’s a third party and it’s better audit proof that you have a third party coming in and showing that your house was able to be occupied and used for its intended purpose.

Rex: You might also be able to use things like the electric bill, the phone bill.

Jeff: There you go. That’s wonderful too.

Rex:  Water bill, various utilities; all kinds of services that might be at your home. You might could use those as evidence that you live there.

Jeff:  Exactly. Third party evidence by the phone and electric.

Rex:  Be careful about bringing in someone from the local taxing office though. They may want more in tax.

Michael:  [laughs] Well, one the things I have called is I did call the IRS office and one of the things they indicated also that I might think about doing in addition to the things that you suggested is to put together basically a summary document explaining what I’ve done, making sure that I’ve got receipts for all the materials etc. just basically to be able to support the value of the home as well as indicating that I’m occupying it and that it’s my primary address.

Jeff:  Right, right. Yeah, the receipts are good backup to support the value. But, your main problem as you mentioned was that you don’t have a CO.  So, whatever you can do, sure that up.

Michael:  Okay. Well, I just wanted to make sure that I was on the right path.

Jeff:  You are. That was a great question. Thanks for calling.

Michael: Alright. Thank you. Bye-bye.

Patrick: Thanks again Michael. Yes, call in at 214- 787-1570. Also, take this time. You’ve got Brad Bolinger out at Bolinger and Hogue’s standing by at the office. His number is 972- 309-0104 to answer your estate tax questions or estate planning questions. He’ll only be there until about 1:30.

So, take this time. If you got that kind of question or need, call. He’s standing by. 972- 309-0104. I know that, Jeff, you’ve also got folks standing by at 972- 378-5200. Get your extension taken care of this week. You’ve got a few days left. They can connect with you. Get the extension for free and then get themselves, hopefully, with you, Jeff. So that you can audit-proof their return, is that right?

Jeff: We like to do that.

Patrick:  That’s specializing I know you guys do and you do it so well. We’ll be right back.

[commercial]

Patrick: And welcome to Tax Talk, this is Pat Dougher. We are answering your questions today. I know that many of you are trying to do get the most – well, maybe pay the least, to get the most in tax refund or pay the least in taxes. I know, Jeff, you had somebody break down in your office this week because they just paid too much.

Jeff: Oh, I feel bad for that. But, what she’s going to do is she’s going to come back, and we’re going to plan and we’re going to save a lot of money next time.

Patrick:  Very good.

Jeff:  So, planning is what really makes it happen.

Patrick:  And so, really, asset protection and tax planning is important, isn’t it, right now, guys?

Jeff: Right, absolutely.

Rex: More than ever.

Patrick:  So, I know you’ve got an upcoming seminar May 15^th.

Rex:  May 15^th, our second session of that we’re going to have Jeff again talking about more tax tips. We’re also going to spend some time in that particular session talking about asset protection for just regular people. It’s also going to be applicable to business owners.

Then, in our third session, which will be in the afternoon, it will about entity choice, entity taxation and entity management. So, if you have a limited liability company, or a limited partnership, or a family limited partnership, that session is for you because we’re going to show you some ways that you can manage those entities, have your meetings every year, take advantage of some tax deductions that are available through those entities.

A lot of people like the LLC in the LP because they don’t require those meetings, but those meetings are great idea. A lot of people view that as something boring we have to do, but it can actually be fun, exciting and profitable if you do it right and we’re going to show you how to do that at our seminar, May 15^th. Again, the price is going to be $79.

Jeff:  Yeah. Rex, I want to mention also that if you’re thinking about getting into business – a lot of people who get into business, they have existing entities. But, if you’re thinking about starting a business, starting from square one, starting the right way is a good way to go.

Rex: Absolutely, I’m sure you’ve seen this too. I know that in our office, I can’t tell you how many times somebody has come in, they’ve got a corporation and when we sit down and look at what they’re trying to accomplish, it was a bad choice to make.

And they’re stuck in it and there are some severe tax consequences that had they sat down and mapped out in the beginning – this is what we’re trying to accomplish – they would have done a totally different type of entity that would have better fit them then and, particularly, with corporations where they hold real estate inside the corporation, it’s almost always a nightmare.

Jeff: Yes. I hate those.

Patrick:  How does somebody attend this and where is it going to be?

Rex:  The location is going to be Lincoln Center which is going to be at 635 in the Dallas North Parkway. We don’t have yet the information about how to get it. You can call our office or email me at rex@bigtexlaw.com. Tell me that you’re interested. We’ll make sure that you get the information and next week, we should have a place that you can call and sign up for it.

Patrick:  Very good. Well, they could talk to Brad too, couldn’t they?

Rex:  Oh absolutely, yeah. Call Brad right now at 972- 309-0104. Let him know that you’re interested in attending and we’ll make sure that you’re put on the list.

Patrick:  That’s great. 972- 309-0104. You can talk to Brad Bolinger. I know he’s standing by. He’s an estate attorney and a CPA. That was kind of neat. He really specializes in lowering your taxes for your estate. I should say they’re really amazing at that.

Jeff, I know that a lot of people are looking at the Roth IRA and there’s a deadline on that. Isn’t that this week?

Jeff:  Oh, yeah. So, if you’re not eligible to make a Roth contribution, you can come in through the back door. All you have to do is make a nondeductible traditional IRA contribution and then roll it the next day into a Roth. But, that deadline is April 15^th to make your nondeductible traditional.

Patrick:  Very good. If you have any questions, I know a lot of you may be even working on our tax returns this weekend and you might have some last minute, “Can I deduct? Should I do this? what did they mean by this specific code or word?” Call in 214- 787-1570.

I know we’d had people talk about LLCs already today and real estate that they had been paying off or literally all the way [34:06 inaudible] and there are several questions that I know you have and you can get your answers at 214- 787-1570. If you’re outside the area, it’s 800-5831570 or if you have a Sprint phone, it’s just #KLIF to get your questions answered on anything tax-wise.

Jeff:  That’s right. So, we’ll hit a little bit of news that also might be affecting some of you. Starting in 2011, the IRS is going to start tracking online sales. So, those of you who have these eBay businesses or just sell things over the Internet, you’re going to have to deal with making sure that your merchant card sales are going to be correct and accurate.

You already are, I’m sure. But, this is another thing that’s going to be reported to the IRS – payments made to you through merchant sales. So, that’s including PayPal and as well as your traditional credit cards.

Rex:  They already have the form for that. Amazing.

Jeff:  They already have the form, right. It’s a 1099-K. It’s going to have your social or whatever your business tax ID is and it’s going to report to the IRS how much you got in online sales.

Patrick:  Wow. I’m going to have to worry about that. That’s ouch.

Jeff:  No, you’re not going to have to worry about that, Pat, because I know you report all your income.

Patrick:  Well, no, I do. But, I meant I would have to start following that because PayPal is one of those things that – there are services that I have paid for through PayPal.

Jeff:  Well, it maybe that some people have a PayPal account, and they get their income, and they also pay expenses through it.

Patrick:  Correct.

Jeff:  So, they may have to change the way they’re reporting. Make sure you gross up your sales because you never, never, never want to report less than your actual sales and then deduct the expenses.

Patrick:  Well, it is real common for people to get paid and then actually pay certain things.

Jeff:  Yeah, if you get lazy, it’s easy to do.

Rex:  Hey, you just brought up something really important. That is when you say grossing up the sales, making sure that everything is included because you can in a lot more trouble for under reporting income as opposed to overstating deductions.

Jeff:  Right. And that omission of 25% or more of your sales is also one of the ways they can go back past the statute of limitations. That’s statutory fraud; constructive fraud.

Patrick:  Ouch.

Jeff: Omitting 25% of your gross receipts. So, they’ll go past the normal three years to audit you for that.

Rex: And I used to tell people to you remember Al Capone. He was caught for failure to report income. He didn’t go to prison for killing people, bootlegging, or kidnapping.

Jeff:  Right.

Rex:  It was for under reporting income.

Patrick:  Well, I know that a lot of people, they want to know the answers. They want to get a hold of you guys. They can call now at 214-787-1570 to get your questions answered on taxes this week.

I know that there are deadlines coming, so you probably want to get in before the end of the hour. And then also, if you need to meet with Rex or Brad, with Bolinger and Hogue or with Jeff and his firm, you can call them. I know, Jeff, you’ve got people standing by 972-378-5200 up in Plano. It’s 6533 Preston Road Suite 300 Plano, Texas.

I know a lot of people might want to just go visit your website at pickeringcpa.com and then with Rex and Brad, it’s just Bolinger and Hogue. But, the easy way to remember those two is bigtaxlaw.com. It’s a redirect that will take you right to the Bolinger and Hogue site.

And their office is up there at 2595 Dallas Parkway and you can call and talk to Brad, get some questions answered, even get signed up for the May 15^th seminar. 972- 309-0104. Tony, you have a question. Go ahead. You’re on the air.

Tony:  Yeah, for the first time in my life – and I’m over 60 years old – I got a deficiency notice from the IRS for 2008 returned under reporting over $7,800 in income. Apparently, my wife’s former employer sent an incorrect 1099 of a distribution from her 401K and she hasn’t even worked for him since ’06.

I’m trying to figure – we’re going to dispute it and we’re going to have to contact the 401K record keeper company. I’m wondering is this going to affect me in the future as far as being on their watch list or anything like that?

Jeff:  Okay, Charlie, can you stay on the line?

Charlie:  Yeah.

Jeff: Okay, great. We’ll be right back to answer that question.

Patrick: Very good.

[commercial]

Patrick:  And welcome back to Tax Talk. You have about 11 minutes to get your questions answered for taxes this season. I know that we’re coming up on a deadline and I know a lot of you may have a lot of questions that have to do with, “How do I reduce my taxes? How do I get the biggest refund?”

And if you don’t take the next 11 minutes to call in to 214- 87-1570, you’re going to miss this free opportunity, really. Talk to Jeff Pickering, CPA Masters in Taxation, Rex Hogue, Bolinger and Hogue, Estate Attorney. These guys really can give you the answers to you questions. Tony, you had just asked a question.

Jeff:  Is it Charlie or Tony?

Patrick:  It’s Tony.

Tony:  Tony.

Jeff:  Oh, sorry. I wrote down the wrong name. Tony, great. So, Tony, you’ve been doing your taxes for what, 60 years?

Tony:  45 years.

Jeff: 45 years. You’re 60, okay. And you got your first IRS notice. I would say, don’t take it too hard, first of all. Then, what happened is your wife quit her job or somehow separated from her employer and the plan administrator gave a 1099 to your wife unbeknownst to her or unbeknownst to you.

Tony:  They sent it to the IRS. They didn’t sent it to us. It’s1099-R. It’s a distribution of retirement.

Jeff:  Right.

Tony:  It was code L and I’ve looked up L. I believe that’s a loan.

Jeff:  Okay. Yeah, so at the time of her employment, she had an outstanding loan and what they did is they forgave the loan, sort of.

Tony:  She never had an outstanding loan. That’s the problem.

Jeff: Oh, that’s very interesting.

Tony:  Yeah, it caught us completely by surprise.

Jeff:  Yeah. So, what I would do in this case is – what’s the time limit to respond to this notice?

Tony:  May 5^th.

Jeff: May 5^th. I don’t think that’s enough time for you to actually – if it is, that’s fine. But, you’re going to have to call the plan administrator and get it sorted out. If you can’t, which I suspect you won’t have enough time to get proof and get a corrected 1099-R, then I would disagree and say we’ll be sending further documentation.

So, you know that you have those three boxes to check; one is you completely agree, one is you completely disagree and one is your partially agree. You check the completely disagree if you can’t get the corrected 1099-R from the plan administrator.

Tony: So, I don’t have to have a corrected 1099-R or even an email from the plan administrator by May the 5^th. I can just say I disagree and I’m working on it?

Jeff:  That’s right. What would be a good idea also is actually to call the IRS and tell them. But, if you call them, make sure you have the speaker phone because you’re going to be on hold for a long time.

Tony:  Yeah.

Jeff:  And then another little hint is if you’re calling them, then don’t go through the menu. Just don’t touch anything and you’ll get to a real live person faster.

Tony:  Should I go through a CPA?

Jeff:   If you don’t have a tax advisor, that’s one of the things that we do. So, if you want to take the load off of yourself, we’ll be happy to do that. We don’t charge much for handling these things.

Rex:  I would highly recommend that.

Tony:  Where are you located?

Jeff:  We’re in Plano off of Preston Road between Legacy and Spring Creek.

Tony:  Okay. I live in Wylie. That’s not very far. Okay, I’m driving in my car. Let me pull over or you can just give me your phone number off the air and answer someone else’s question.

Jeff: Great. Okay, Tony.

Patrick:  Very good. We’ll do that right now.  Thank you, Tony and it’s actually just 972-378-5200 and you can also find Jeff or get connected with Jeff at pickeringcpa.com. I want to go ahead and try to get another caller in. It’s Sharon. Sharon, you have a question?

Sharon:  Yes. I’m an independent owner; a chef and a caterer. It’s always confusing when we do donation dinners for a non-for-profit how much of that we can declare.

Jeff:  Right. So, this is the rule. You can declare your actual cost. You can’t make a markup. You can’t declare the value of your services for a charitable donation. It’s only your cost.

Sharon:  There’s a new ruling out there though, isn’t there? Something about storage. I’m not quite sure what’s the new ruling is about.

Jeff:  You’re talking about one specifically for people in the food business?

Sharon:  Right.

Jeff: Yeah. I saw that. You are right. There is a new ruling. I’m trying to remember. Sharon, we’ve got to go off the air, but if you can extend, we’ll go – oh, no we don’t have to go off the air, we got two minutes? Great.

Sharon:  There we go.

Jeff: Okay, good. Yes, there is a ruling for food preparers. Now, that you mentioned it, I do remember that there is one. I’m trying to remember the details of it off the top of my head. I actually don’t recall what the details are.

Sharon:  I think I can probably check with National Restaurant Association. They probably have something on their website, but it is just the value of the cost spent?

Jeff:  Yes.

Sharon:  What about labor when we pay for labor on that? Is that also included in the cost? I know my services aren’t deductible, but if I’m paying wait staff.

Jeff:  Definitely, those are. Definitely, any out of pocket. That ruling, I remember it was that general tone of it was really for the people in the grocery business. So, that was who is directed to but you may be able to use it yourself.

Sharon: Right, right. It had something to do with food storage. Great.

Patrick:  Very good.  Thank you, Sharon. One of the things I’m sure you could do is somebody could email you, Jeff, questions like that and you can help them also at jeff@pickeringcpa.com.

Jeff:  Right. That’s right.

Patrick:  And then, Rex, you got rex@bigtexlaw. You can connect there. I know that you’ve got your upcoming May 15^th asset protection.

Rex:  Yes. One thing that people are going to walk away from, not only do we have a notebook that’s going to include several hundred dollars worth of information, but they’re going to walk away with the outline of a strategic plan. So, this is a seminar that you definitely want to attend. The cost is going to be $45.

Patrick:  $79 I thought.

Rex:  Oh, I’m sorry, $79 I don’t know where I came up with $45. It’s $79. Look for our one day opportunity to get a discount on that next Sunday.

Patrick:  Okay.

Jeff: If I may. While Rex answered that, I found the answer; what Sharon was asking for. So, it’s basically food inventory. It may not exceed 10% of your taxpayer’s net income as long as you’re not a corporation.

Patrick:  Very good. This is Tax Talk. Meet with us next week as we talk more about asset protection. It’s been a great show. Call Rex and Jeff and connect with Brad right now at 972- 309-0104. We’ll see you all – or hear. Talk to you all next week.