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In this episode of Practical Tax, tax attorneys Steve Moskowitz and Liz Prehn discuss economic loss, or, in the tax world, tax deductions that you fail to take. In order to get the possible outcome for your tax situation, you need time, attention to detail and knowledge of the law. A tax attorney can provide all three and end up saving you lots of money. Listen to the podcast to learn more!
Speaker 1: 00:00 There’s a guy I work with. We make about the same, and the other day he tells me he’s paying about 20% less taxes each year. And this has been going on for years! You know, I usually file my own, and he has a tax attorney. I’m thinking, “How much have I lost by doing it myself?”
Speaker 2: 00:15 You’re listening to Practical Tax, with tax attorney Steve Moskowitz.
Steve Moskowitz: 00:19 There’s a popular concept in social science; it’s called economic loss. For example, if you sold a stock today, and then you said, “Oh no,” the value went up tomorrow, the money you didn’t make is considered an economic loss. The same applies to tax deductions that you fail to take. We call those missed opportunities. Joining me today is my long-time, of over 20 years, colleague, friend, tax attorney Liz Prehn. Liz?
Liz Prehn: 00:46 Yeah Steve, thanks. We have thousands of examples of clients that have left money on the table, and they come in, and you can usually pinpoint it right away and kind of give them a good roadmap, but… You know, just to talk about a couple of examples; this one’s timely. One is, she came in for year-end tax planning, she is a doctor, had a practice and continues to have a practice — she says she never wants to retire; she loves being a doctor. She also has part of her practice that has a products line and information services regarding those products. We were able to save her over $420,000 this year off her taxes, just based on some calculations. It took some time just to think them through, but really think through with this new tax law, and the end result was actually very simple for her to implement.
Steve Moskowitz: 01:46 What you did, brilliantly, was you took the new tax law, but you took the time and the attention to detail and the caring to take the client’s facts, and saying, “Hmm, if you have these facts, under this new law, if you made this slight change, you could get around this limitation and save this $420,000, which of course, is amazing.”
Liz Prehn: 02:07 Yeah, she’s so happy. What makes it even more rewarding is how simple it is for her to employ this. It involved just, kind of spinning off one part of the businesses and setting up simple payroll for her. The benefits are untold.
Steve Moskowitz: 02:26 That’s another benefit of this new law, where some very simple, relatively minor changes can produce major changes in tax savings. And something else that comes up all the time is, when we interview new clients, so often they’ll say to me, “Oh, is that new?” Now, right now, we do have a new tax law in 2018, but there’s still plenty of the old stuff left. And clients will say, “Is that new?” And we’ll say, “No, that’s been around for years,” and we wind up filing a lot of amended returns, three years federal, four years California, to save them money. And again, it’s a combination of things. Of course, knowing the law is so important, but you have to take the time and the attention to detail to find out, what is this client’s case? And without disrupting their business, what change could I make, especially the ones that are small and easy, that would save this client a lot of money?
Liz Prehn: 03:16 Or not be too presumptuous. Recently, we had a client we ended up doing some amended returns for them because they happened to be two lawyers, one had been a partner in a firm and was receiving a K-1, even though she wasn’t working. And what we did is we took a look at what she was really receiving, and if it was going to be subject to FICA tax, social security. So we took a look at that; that was kind of our intention. But, as we were going through and amending the tax returns, we realized they forgot depreciation on one of their properties for two years. There was an AMT tax credit that they had forgotten. They came in with one thing, and they left having kind of a comprehensive tax return. It saved them, they’re getting big refunds. They had overpaid their tax.
Steve Moskowitz: 03:56 Yes, they did. And one of the things I think we should note here — the client was an attorney, and she’d worked for a law firm. People hear a lawyer, and say, “Oh, all lawyers know all law about everything,” and the answer is we don’t. We tend to, like doctors, go into our areas and say, “Look, I want to concentrate in this area and learn as much as I can, but the other areas, I really don’t know about.” These were fine lawyers, but they weren’t tax lawyers, and yet they made all these mistakes. And, it wasn’t just our client that made the mistakes, it was the law firm that she worked for. We had to come in and say, “No, no, no, wait.”
Liz Prehn: 04:24 And her accountant.
Steve Moskowitz: 04:26 And that happens, “Wait, wait, wait, we can go ahead and make these changes, and save you all that money.” And it makes such a different in people’s lives. When you look at the cases, we don’t look at, oh, this is a case, or a tax return. This is somebody’s life. Someone has entrusted their life, their business to us, and we take that very seriously. We take care of him or her, and that’s what we try to do here is take not only the expertise, but the time, and the effort, and caring, and thinking. So, what could we do to give this person even more?