For those living in the U.S, it’s tax time. For over 20 years owning and growing our tax consulting and preparation companies, it’s always a stressful time not only for our team but also for clients. To almost everyone is just misery.

The most interesting thing we find through client discussions is the amazing financial advisor “self-interest” recommendations. Even after the Bernie Madoff situation and Ponzi scheme, there are still mindboggling recommendations that we hear from clients. I pass these on just to raise awareness of the ongoing problems in the financial services industry.

This past week, I heard the following:

1. Age 55 clients, married and middle income. The financial advisor (investment manager) had recommended to the client to not participate into the company sponsored 401(k) plan. The reason was this statement “the 401(k) investment fund choices are not as good as the funds we can select for you with your Roth IRA.” This type of recommendation makes absolutely no sense at all – lose a guaranteed 100% return with no risk through the company match and the tax deferral of income and reduction of taxes.
2. A client age 50, financial advisor is recommending that he surrender his life insurance policy to purchase a long-term care policy. Of course this might make sense dependent upon specific needs, family health history, asset protection, etc. but the most interesting thing is that the client provided the financial advisor information about the policy and the advisor contacted the insurance company to start the process without informing the client.
3. Client age 85, widow and the financial advisor took discretionary authority on the accounts after his wife died and set up a new program without telling the client with automated buying of a few individual stocks (client has never owned a stock ever) and conservation of capital is the clear investment objective.

No matter what, always keep common sense at the forefront of your planning. There are plenty of great advisors of course, but still many offering poor advice and recommendations.

5 Tax Tips for Entrepreneurs

1. Organize your finances – yes it’s simple but it takes time. Set up a system to track business mileage, check out www.mileagepad.com (yes it’s a must and you can’t just make it up when you get an IRS notice). Track all your expenses in a simple expense tool that allows scanning receipts, check out expensify.com. It’s not much different than setting up your company books with a system from the very beginning – grow up your business and review your P&L monthly.

2. Hire a professional – Yes you can absolutely prepare your taxes on Turbo Tax, etc. but remember it’s only a software program and in many cases clients will come to us just agreeing with everything the software suggests, missing many items. There is a major difference between just “plugging in data” and knowing tax laws.
   1. Also, establish the systems from the beginning with regards to payroll tax and making quarterly estimated tax payments.
   2. Depreciation – what is it and how can it help or hinder your tax situation today and in the future – remember for rental real estate you must recapture depreciation at the sale.
3. Don’t ever mix company funds with personal funds. This is the most often mistake we see with clients when they are facing a lawsuit and the potential of “piercing the corporate shell” can become a reality.
4. Only set up an entity when it’s necessary – LLC, S Corp, C Corp. There are clear reasons to establish entities, but time and again we review client information and they just automatically set up an entity, as it’s easy and cheap to do online. They have no revenue, expenses, etc. as it’s “just the thing to do to set up an entity”. It is still an alternative to start out as a sole proprietor (depending on risks) and grow.
5. Employees vs. Contractors – This is a challenge for so many entrepreneurs as the IRS rules can be a bit difficult to follow. The mistakes can be dramatic with future audits – get it right from the beginning and an ongoing process established in your business.

Take a deep breath and get your taxes filed early just to reduce the stress for all parties and get back to business!