Jeff Haywood, CPA

Archive for August, 2011

IRS Top Ten: Tax Tips for Individuals Selling Their Home

Did you sell your home or are you considering selling your home? If so these tax tips found on the IRS website will be of interest to you.

If you need assistance preparing your tax returns I would be happy to assist you.  I am a CPA with many years experience preparing tax returns for the public.  Feel free to contact me using the information below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

IRS Tax Tips: Do You Owe the IRS Money? What You Need to Know.
Does the IRS Have Money Waiting For You
Ideas: How Young People Can Become Entrepreneurs and Find a Home
IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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IRS Tax Tips: Do You Owe the IRS Money? What You Need to Know.

Below is an IRS Tax Tip that appears on their website with tips for you if you owe them money.

If you need assistance from a CPA with years of experience preparing tax returns for the public, feel free to contact me using the information below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

Does the IRS Have Money Waiting For You
Ideas: How Young People Can Become Entrepreneurs and Find a Home
IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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Does the IRS Have Money Waiting For You?

Below is an IRS Tax Tip that addresses that question:

If the IRS has money waiting for you there is a limited amount of time to get your return filed to get your refund so contact me right away.  I am a CPA with years of experience preparing tax returns for the public.  Please feel free to contact me using the information below.

 Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

Ideas: How Young People Can Become Entrepreneurs and Find a Home
IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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How Young People Can Become Entrepreneurs and Find a Home

I wish I had started purchasing properties that were or would become income producing when I first moved out of my parents home. I had no idea it was even an option rather than renting so I want to let kids and parents know it can be done. I know of several young people who bought properties instead of renting. Yes, most of them had to have some help from their parents but it was a great learning opportunity for them and an opportunity for the parents to help their children learn about business and real estate.

Let me give you two examples. First, my nephew bought a one bedroom condominium with some assistance from his parents and the generosity of the requirements for an FHA loan. It was several years ago and it was a challenge to get an FHA loan on a “condo” but he got it done. In my last post I noted that you can rent a one bedroom apartment in McKinney Texas for about $800 a month. My nephew bought a “condo” instead, also in North Dallas, and got a monthly payment at less than half that amount. Of course he is responsible for the maintenance and repairs but with the lower monthly payment that need not be an issue. He has been in that “condo” for several years now but could turn it into an income producing property by renting it and getting a positive cash flow.

I like this second example even better. A friend after college bought a three bedroom “condo” and rented the other two bedrooms to friends and covered his monthly payments. How do you like that idea? Ideally you save up the money to put down, perhaps while living with your parents, and you purchase the property and rent the other bedrooms to your friends to at least cover your monthly payments. Your friends may find this more attractive than paying $800 a month in rent for their own one bedroom apartment.

If you do not qualify to buy the property you probably should wait until can save enough and establish your own credit so as to qualify. Another option would be for your parents to co-sign on the property for you with an agreement that you will refinance the property to get them off the note within a few years. I am not a mortgage expert but I assume this can still be done. However, your parents and you together would have to qualify. When you do this and rent the other bedrooms to your friends you can learn how to buy and rent properties and run a business. It is great training for a young person. Of course eventually you will be ready to buy your own property to live in and raise a family but you will still have this “condo” as a rental property to give you another stream of income.

Parents should be excited about this opportunity for their kids and the opportunity for their kids to learn about money and business. I know many families do this when their kids go away to college. Often the kids develop into entrepreneurs who become very successful.

If I had known I could get a lower monthly payment by purchasing a “condo” using 3% of my own money with an FHA loan I would have discussed with my parents staying with them for less than a year to save up that money and make  the purchase happen.  I would probably still own that “condo” and by now it would be paid for and I would be getting a great monthly cash-flow on it.  If only I had known.  Well now you can know and take advantage of it.

So I hope I have helped you to see that there are options to renting an apartment and actually ways to start building other streams of income.

In addition to your housing expenses if you purchase or rent a property you also need to count the cost of your other living expenses.  See my previous blog about Are You Ready for Your First Apartment/House.

 Remember I prepare tax returns for people for a living. When you buy your first property and rent out bedrooms to your friends your tax return gets complicated.  In that situation you will likely want me or another tax professional to do your taxes for you. Also, please call before you start a business as I can help you avoid many surprises and save you money. In the case of buying a rental you will want to look at some ways to protect yourself from liability issues.  I would be happy to talk to you about those issues and help you with your tax returns.  Feel free to contact me using the information below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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IRS Top Ten: Facts about Amending Your Tax Return

Mr. CPA, I just received a 1099 with income I did not report on my tax return. I had forgotten all about it. What do I do now?

Mr. Client, You may need to report the income by amending your already filed tax return. How do you do that? Let’s let the IRS address points about amending a return via these IRS Tax Tips which appear on their website:

IRS Summertime Tax Tip 2011-12, August 1, 2011

If you discover an error after you file your tax return, you can correct it by amending your return.

Here are ten facts from the Internal Revenue Service about amending your federal tax return:

1. When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
2. When NOT to amend a return In some cases, you do not need to amend your tax return. The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.
3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ. Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B. There is an area on the back of the form to explain the specific changes and the reason for the change.
6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

Form 1040X and instructions are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Form 1040X, Amended U.S. Individual Income Tax Return

Instructions for Form 1040X

YouTube Videos:

Amending My Return: English | ASL

Of course amending a return is challenging but I am here to help you.  If you would like me, a CPA with many years experience preparing tax returns for the public, to amend your return for you or prepare any other tax returns feel free to contact me using the information below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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Are you ready to move into your first apartment/home?

How much will it cost to get your apartment and more important how much to do you have to make to “swing” the payments/monthly costs? One indication you are ready to make this move is doing the homework to “count the cost” and see if you make enough money to make it work. Taking this step is a sign of maturity.

Estimate Your Cost of Living:

I have done some basic leg work to help you but more importantly I want you to have an idea of what you need to know before you take this big step. So this article will give you some framework of knowledge about what to consider.  It took me about 1.5 hours of work on the internet and the phone to get these figures/estimates. You will want to do the work to get these specific costs for where you live or want to live because they certainly will vary depending on your location.  Also, you need to think about what is important to you and what it costs to know if you can afford it.

Here are some of the cost you will want to estimate.  First, your biggest expense will be your housing costs; your monthly rent, insurance, utilities, cleaning etc. In addition you will need to pay for groceries and other supplies. You will need to pay to get to work, so that will likely include a car payment, insurance, gas and tolls. You will have these expenses unless you live in a city with reliable public transportation and you can get to and from work without a car. Then you will need to figure out how much your transportation will cost you. In addition, you will have the cost of a phone, clothes, entertainment and there will always be the unexpected other expenses. You can count on the unexpected.

I gathered an estimate of the current cost of renting an average 1 bedroom, 1 bathroom apartment in McKinney, TX and the cost for a 21 year old single male purchasing a 2003 Honda Civic 4 door for $8,900 (more on that later) and driving between 12,000-15,000 miles a year. Following are the average/estimated monthly costs:

Rent $810
Utilities $150 electric, water, trash
Car Payment $338
Car Insurance $130.5
Gas $302
Tolls $40
Groceries $ 250
Other Supplies $35
Clothes $167
Cell Phone $80 average rate T-Mobile
Cable/Internet $49
Entertainment $275
Other $200
Total $2826.50
Deposits $100/mo for total of $1,200
Your annual estimated expenses would be $35,118

Let us consider a couple of things to give you some insight. First, you can get a 2003 Honda Civic 4 door for about $8,900 plus about $2,000 for tax, title and registration. It is always the tax, title and registration that will catch you by surprise. The salesmen will not even count that for you until you agree on the price of the car. Starting out you may want to get a much less expensive vehicle but then you will have higher repairs which I did not include in the above estimate.  Second, when you first rent an apartment or a house you will have a security deposit and deposits for the utilities. In this case you can add about $1,200 to your first year out of pocket costs for deposits. Again, these are estimates and you may find you will pay more or less. You need to know yourself and check out what these costs will be for you.  A couple of costs that can vary tremendously are entertainment, food, clothing and the car expenses we already mentioned.  Realize too you will also eventually have out of pocket costs for the dentist, eye doctor and other health professionals.  You will find you can also get a less expensive apartment but consider carefully what you will get and the condition it will be in.  For me to lower my costs I started with an efficiency apartment rather than a one bedroom.   You may find you can save significant money by getting roommates to share an apartment or a house.

Last of all, when you develop a budget after doing all the legwork it is recommended that you also pay yourself first by putting some money from each paycheck into savings. You may want to set a goal to work on getting at least 6 months of living expenses in savings in case of emergencies. What happens if you lose your job, which is not a rare occasion today? Consider what I have shared with you and I hope you will find yourself equipped to succeed financially and get your own apartment/home.

Calculate How Much You Will Need To Make to Cover Your Costs:

Now the big surprise. To pay for the out of pocket costs for your first year of $35,118 you will need to make roughly $43,000. That will net you about $35,200 after taxes and a 3% contribution for to a 401k retirement account at work. Your employer will withhold income taxes, social security and medicare from your gross pay and the 3% contribution to the 401k and probably more for health insurance. If they do not provide health insurance then that is another costs you may need to account for.

Do Your Own Homework:

I recommend that you do your own homework by going to look at apartments and asking what they cost and don’t forget to ask about utilities. The above costs do not include any parking. So make sure you ask a lot of questions. I would make a list before you go.  Also, make a trip to the grocery store to buy your own food and see how much it costs and how long it lasts.

Are You Ready For the Responsibility?

That brings up one final point you need to consider to determine if you are ready to make this move. Are you ready to cook for yourself and pay your own bills on time? Do you know what happens when you are late on your payments? When you make your payments late you have to pay late fees. Are you ready for that responsibility? What about cleaning? If you are a 21 year old single male are you ready to cleanup after yourself? Try cleaning your parents home every week for at least a month to see if you are ready for it.

To get use to the monthly payments, pay mom and dad every month for rent to see if you can make it. They may be willing to hold this money for you to use when you get started and have to pay for those deposits and also to pay for getting furniture, which I also did not include in the above estimates.  I found that in the US you can get used furniture for next to nothing on craigslist.  But check that out for yourself.

Make It Work:

Finally, you may find you need your parents to help you get into your first apartment. Most complexes will check your credit history and if you do not have one they may require your parents to provide some pledge that they will be responsible if you do not pay your rent or damage the property.  I recommend you first establish your own credit by getting a credit card and paying off the balance monthly and then get a small car loan and make the payments on it and the insurance for at least a year.

Remember this was just an exercise. You can be creative to figure how to make this happen and to determine when you are ready to successfully make it happen. You should now have an idea what information you need to get to know how much it will cost you to live on your own.  You should probably try to figure out how can you get a car that is paid for or find a situation where you do not need a car.  If you find you are not ready today, figure out what you need to do and set a goal to make it happen by a certain time. Knowing what it takes empowers you to successfully make it happen eventually.

If nothing else I hope you learned from this what it takes to be financially responsible for yourself and appreciate what your parents have been providing for you. But perhaps now it is time for mom and dad to help you to learn to be financially responsible. Your parents may be able to help you do some of the homework and give you some insight as well based on their own experience and knowledge of the area.

You may want to take a bigger first step in your financial growth than renting your first apartment.  I am planning another blog about other options that could help start developing streams of income using real estate even beginning with your first home.

Remember I prepare tax returns for people for a living. When you first get a job and then an apartment you will probably want to and be able to prepare your tax return. However, if you start your own business and “set the world on fire” with success you will likely want me or another tax professional to do your taxes for you. Also, please call before you start a business as I can help you avoid many surprises and save you money. Feel free to contact me using the information below.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

Click Here to Follow Jeff Haywood, CPA on Twitter

For recent US income tax content see the following links:

How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return

For a full list of prior posts see the CPA Tax Blog.

Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

Comments:

If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.

This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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How to Succeed in Business: Pricing

Mr. CPA, Tell me what I need to know to be successful in business – make money and stay in business for a long time.

Well, Mr. Client, there are too many subjects for one blog entry to answer your question.

Mr. CPA, Please tell me one important factor I need to know about.

Mr. Client, Let’s start with pricing and your reason for being in business.

Making a profit is very important for you to stay in business.   Now you would think this would be obvious but their is a sinister motive that can kill your profit, your business and your quality of life.  What is that sinister motive?  It is the desire to be the biggest and most popular.  The ugly part of this disease is it causes the owners/management to lose site of the real goal.  Instead of pursing the most profit (money in your pocket at the end of the day) they pursue being the biggest in their market and it leads to poor pricing decisions and deteriorating margins and ultimately the death of the business and working too hard in the process.

I want to share some thoughts I recall from a seminar I attended years ago.  First, is an illustration that highlights the need to focus on profits not size or fame.  At the time of that seminar GM had just posted a loss of millions of dollars.  The presenter asked us who is the oldest and most profitable automobile company?  One hint for you, it was not the biggest which I believe GM was at that time.  It was Mercedes Benz.  Now ask yourself how does Mercedes Benz market and price its product?  Have you been to a sale on Mercedes Benz?  GM on the other hand marketed and sold based on sales/discounts.  At that time there were no discounters who had been successful for a long time – many years.

Consider that being in business is all about how much money you have in your pocket at the end of the day.  The seminar presenter’s young son ran a lemonade business that summer.  His son’s net profit was around $30.  Your not impressed.  Maybe you should be.  His son made millions of dollars more than GM that year.

A little while ago I saw an article about the Grateful Dead and their success.  You may wonder what success since they were not a band that produced top forty hits.  The Grateful Dead was profitable and had a most loyal following for many years.  You see you do not need to be the most popular or the biggest in your market (in sales) to be successful.  Mercedes Benz does not sell the most cars but they have the most money in their pocket at the end of the day and have been in business longer than any of their competitors.  The Grateful Dead were not the most popular band but they were profitable and they stayed in business longer than well over 90% of their market.

So let me see if you understand the concept.  If you price your product 20% higher than your competition, Mercedes Benz is much higher than that, how much less in unit sales can you take and make the same profit?  As long as you do not lose 20% or more of your customers you make the same or more money and work less.  How do you like that formula? You understand if you get that not discounting your price enables you to make the same profit and not work as much.  GM and other discounters make more products, work more and harder to make less money.  So what do you want to accomplish?  Do you want to sell more widgets than anybody else or do you want to be the most profitable and have the most money at the end of the day and a better quality of life?

Years ago I consulted with a lawn care professional about this very subject.  He was working too much and not making much money.  He was thinking about buying more equipment and adding more employees and discounting his price to attract more clients.  Does a lower price accomplish that?  I know that is taught in college courses but it is usually taught by a guy wearing sandals.  Are you buying that?

OK lets try pizza.  You ever buy pizza from Domino’s?  Apparently many people do because I see their delivery vehicles every day.  Why would you order a pizza from Domino’s?  They do offer sales but even when they are on sale their pizzas are not the lowest priced in the market.  Their pizza is not even close to being the best quality.  So why do you buy their pizza?  Because they deliver quickly.  Domino’s makes a nice profit but they do not price their product to be the biggest nor are they the most popular.  So is pricing your product or service lower than the competition what you want to do?  If so you will work too much and not make enough if any money.

I explained to the lawn care professional that he should try on the idea of not adding equipment and employees but rather raise his prices by around 15%.  In particular he could identify his clients that are geographically more isolated and raise their prices more to make it more worth his while to drive to their location.  If they fire him then his business would become more centralized and require less time.  He could lose up to 15% of his clients and work less and make the same money.  In all likelihood he would lose a smaller percentage of clients and make more money.  In addition good clients value your product or service more if it is not the cheapest in the market.  Do you know what stopped him from implementing this strategy?  He wanted to have more clients than his competitors more than he wanted to make money and work less.  Three years later he still was over worked and not making much money.  You see desire to be the biggest will kill your business and your life.

Now here are the “real kickers.”  Of your clients, who complain the most and take the most of your time?  That is right, the client that wants the biggest discount.  Think about your quality of life and how your pricing affects that.  Also, what happens when you invest in more equipment and hire more employees because you are going to get more customers when you lower your price?  If you were your own competitor what would you do in response?  Perhaps you would consider matching the price to keep your own customers?  Probably.  And then what happens?  Everyone makes less money and your customers will complain more, because you are what?  Cheap.  So your service or product must not be very good.

There is much more to share about pricing but for now I will leave you with something to think about.  Perhaps you have heard the expression: “Build a better mousetrap and the world will beat a path to your door”?  Wrong.  They will only beat down a path to your door if you do not charge enough.

There is more than one way to get to the market.  Which way will you choose?  What do want to accomplish?

I am happy to share my insight gained from years of experience in my own business and having a prime seat serving many clients over the years to see what works and does not work.  I have my own income tax practice and my price is not the lowest and I am not seeking to get the most clients.  I have fewer clients who get better service and I make the same or better money in less time.  I would be glad to help you as a client if you really want to be successful in making money and having more in your pocket at the end of the day.  Call me today using the number below.  I am not available 24 hours a day because I value my quality of life but my SOP is to return your call within 24 hours or let you know when I will be available.

Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com

I prepare the following types of tax returns:

Personal
Business
Estates
Trusts
Federal and State Returns

I especially enjoy discussions about you, your business, your dreams and goals.

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Standard Disclaimer:

As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.

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This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.

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