cred65 Posted July 21, 2008 Report Share Posted July 21, 2008 Husband and wife are 50% owners of partnership (Form 1065) that is a hair salon. The partnership also owns the real estate. The company does not rent out booths. The partners take a small salary of $18K each and have a small 401K deduction. Their combined taxable income from the business is app. $60K. The previous tax preparer did not have the owners pay the self employment tax on the taxable income and the owners are resistant to reporting this as self employment income. Is this correct or am I overlooking something? I would like to have the partners increase their salaries and max out their 401K contribution (both over 50) and contribute something more to their to social security. Any advice would be appreciated. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted July 21, 2008 Report Share Posted July 21, 2008 IN THIS case i would pay the se tax on the net income but you should definately spin off the salon business from the real estate for a vast number of reasons. Quote Link to comment Share on other sites More sharing options...
jainen Posted July 21, 2008 Report Share Posted July 21, 2008 >>The previous tax preparer did not have the owners pay the self employment tax on the taxable income<< My first question is always why aren't they going back to the previous tax preparer, especially when they have such an untenable position. Section 1402 defines Self Employment as including ALL of the distributive share of partnership's business income. However, as Michaelmars suggests, it should be easy to allocate a substantial portion to rent. For that reason I wouldn't worry much about the past mistakes, just set things up properly from now on. Quote Link to comment Share on other sites More sharing options...
JohnH Posted July 21, 2008 Report Share Posted July 21, 2008 You might want to tell them that if they cooperate in setting things up properly going forward, that might be of some help to them if the past sins ever come up in a future audit. I also agree with jainen concerning the past preparer. If he was really good and they want to continue following his advice, why are they changing? I always want a good answer to that question with a new prospective client who has an existing business. Somebody better have died, moved, retired, etc. One excuse that I always find suspicious is "He raised his fees." After all, isn't that the main way we get rid of most of our PITA clients? Quote Link to comment Share on other sites More sharing options...
Daune/CA Posted July 23, 2008 Report Share Posted July 23, 2008 You might want to tell them that if they cooperate in setting things up properly going forward, that might be of some help to them if the past sins ever come up in a future audit. "He raised his fees." After all, isn't that the main way we get rid of most of our PITA clients? What is the going rate for a PITA client in today's market? :) Quote Link to comment Share on other sites More sharing options...
JohnH Posted July 23, 2008 Report Share Posted July 23, 2008 Depends on the level of PITA the client achieves. Basic PITA is usually a 25% surcharge. Moderate PITA warrants about 40%. Extraordinary PTA can range from 60% to 120%, and billing is usually in 20-minute minimum billing units, even for a 2-minute phone call. Anything over that is just "Get lost, you're such a flake that you ain't worth the trouble at any price", although it's usually stated in terms of "We're reorganizing the way we operate our practice and we've realized that your situation is so unique that we don't think we can do the best job for you any longer." There are just general guidelines - your situation may vary. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted July 23, 2008 Report Share Posted July 23, 2008 Thanks JohnH! I've been wondering about the proper rates to charge. These guidelines will be invaluable especially for the coming season as I "reclass" some of my existing clients. Quote Link to comment Share on other sites More sharing options...
zeke Posted July 23, 2008 Report Share Posted July 23, 2008 >>Thanks JohnH! I've been wondering about the proper rates to charge. These guidelines will be invaluable especially for the coming season as I "reclass" some of my existing clients. << Margaret - I must caution you about following JohnH's PITA rates. I have admired his professionalism and good common sense for years. Now, however, I must doubt his competence. Anyone with his years of experience should have figured out a way to not give advice but to "lease" the right to use his advice. He could then comfortably retire to Hawaii & help Mel with "our" new program! Zeke Quote Link to comment Share on other sites More sharing options...
jainen Posted July 23, 2008 Report Share Posted July 23, 2008 >>"lease" the right to use his advice<< Yes, this is the correct way to handle it, just like software and other "intellectual property." The client isn't actually buying anything, but only has the right to use your information. The license must be renewed annually. (I hope nobody is taking these posts seriously. I mean, you can't unless you pay me a fee.) Quote Link to comment Share on other sites More sharing options...
joelgilb Posted July 23, 2008 Report Share Posted July 23, 2008 >>"lease" the right to use his advice<< Yes, this is the correct way to handle it, just like software and other "intellectual property." The client isn't actually buying anything, but only has the right to use your information. The license must be renewed annually. (I hope nobody is taking these posts seriously. I mean, you can't unless you pay me a fee.) Sending Jainen 3 bananas for his fee and then leasing his advice to all my clients See you in Hawaii Mel Quote Link to comment Share on other sites More sharing options...
JohnH Posted July 24, 2008 Report Share Posted July 24, 2008 I'd expect nothing but laughter if I tried to use the word "intellectual" and me in the same sentence, but just the same it's woth a shot. So here's the deal. I have some other ideas that I'll share with you come next January. But you have to pay me for them now and you only have 30 days after you pay to cancel, even though you don't yet know if they will work as advertised. I'll give you a password that you have to change every 45 days and I'll give you access to a forum to discuss those ideas, but I'll keep you guessing about whether or not I may cancel the forum if it suits me. I also have another set of ideas that cost a whole lot more and I may or may not merge the two at sometime in the future, but I'll keep you guessing about whether or not I'm actually going to do that. All the while I'll pepper you with emails & phone calls telling you how important you are to me, but I'll go ahead & admit that my response time may not be so good, especially during the busy tax season. For the hext 30 days I'll give you a puny discount to go ahead & sign up now, but then if I don't get enough response I may extend the discount to others just to get you really ticked off. How's my business model so far - do you think anyone will actually go for this scheme? Quote Link to comment Share on other sites More sharing options...
Terry O Posted July 24, 2008 Report Share Posted July 24, 2008 OUCH!!! WHY would anyone DEAL with a company like that???? Hmmmmmmmmmmm Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted July 24, 2008 Report Share Posted July 24, 2008 JohnH - that was really good. Someone ought to forward that post to the CEO of CCH. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted July 24, 2008 Report Share Posted July 24, 2008 Oo oo, where do I sign up? How much? What is the discount? Deadline (at least the first one)? Are there tutorials? CPE (for a fee, of course)? Unwanted manuals? I can hardly wait for the details!!!!! Quote Link to comment Share on other sites More sharing options...
bstaxes Posted July 24, 2008 Report Share Posted July 24, 2008 Sounds like a really good deal. I just love guessing games and wait and see games. Are they similiar to 'find and seek' games? Can't wait to pay or should I say play. Thanks for the laugh. Quote Link to comment Share on other sites More sharing options...
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