South Carolina Tax Attorney

Recently, our firm gave a talk at the local Rotary Club here in Greenville, SC.  After the session, one of the members who is a financial adviser to small businesses asked about a certain part of our presentation.  Specifically, he wanted to know if business owners could really become personally liable for the taxes owed by the business.

Lawyers like to call this piercing the corporate veil.  This is because one of the positives in performing your work from within a corporation is that your personal assets, etc. are protected from corporate creditors.  Therefore, if you own a contracting company that is incorporated and you tear up someone’s property, they can only sue the corporation and get damages from the corporation - not from your personal checkbook.

In some instances, creditors (including the IRS) can “pierce the corporate veil” to reach in to the assets of the owners of the business personally.

The IRS can reach into the personal assets of a business’ owners if the corporation fails to pay the payroll taxes that it holds in trust from employees’ wages.  This does not include corporate income taxes, just the portion of the taxes the corporation is supposed to withhold from the employee and hold in trust for the government.  The IRS calls this the trust fund penalty, and it allows them to collect from anyone who has authority to write checks, or who is in charge of payroll.

I have written a couple of trust fund recover penalty articles:

What is the Trust Fund Recovery Penalty

Who is Responsible for the Trust Fund Recovery Penalty

Can I Reduce My Trust Fund Recovery Penalty with an Offer in Compromise?

I have to have this conversation with many of my corporate clients who have run into trouble with the IRS.  There are many many reasons why it is important, essential, and should be required for you to keep good business records.

Keeping good records does not mean throwing all of your receipts into a box for your accountant to decipher at the end of the year.  And speaking of accountants, if you’re in business then you need to have an accountant who is not going to just prepare forms and returns for you, but also will help you with your tax planning to make sure you get the most out of your business.

Here are the top 5 reasons to keep good financial records for your business:

1.  Keeping up with the Progress of your Business

Part of running a successful business is being able to make decisions, being able to cast a vision and reach goals.  How do you know where you are going if you can’t track what is going on with your business?  By keeping good records, you allow yourself to quickly determine how your business is doing at any particular moment.  After keeping good records for a while you will be able to notice trends in your business and work to take advantage of them or minimize their impact.  You cannot put your head in the sand and hope things take care of themselves.  They don’t.  You have to play an active role in knowing what is going on in your business.

2.  Prepare your financial statements

Most business owners would kind of like to know how much money they are making.  Regardless of the size of your business, you need to keep up with your income statement (commonly referred to as a Profit and Loss Statement by the IRS) so you know how much money you are making (or losing).  It is also important to have a balance sheet so you know about your companies assets and liabilities as well as your equity in the company.

3.  Identify Sources of Receipts

In other words - know who is paying you.  First you want to make sure you keep up with who has paid and who has not so you can collect your money.  But more than this, know who your best customers are is one of the secrets to success.

You know the old 80/20 rule?  20 percent of your customers provide 80 percent of your profit?  Some business may be more skewed than that - like 95/5.  Anyway, by knowing who those 20 percent of your customers are, you can treat them better, market to them more effectively and further strengthen your relationship with them.  This also lets you know which customers are just draining you so you can drop them or just spend significantly less time on them until they become more profitable.

You can also apply the 80/20 rule to sources of income when we are talking about just customers but revenue streams altogether.  For example, as an attorney, I keep up with the income I receive from my tax problem clients, family court clients, real estate clients, corporate clients, etc.  You can do this as well so you can determine if there are specific areas of your practice that are more profitable.

4.  Help prepare your tax returns

This may be one of the most important reasons to keep good records.  You need to accurately be able to determine what your business earned this year and how much you should have to pay in taxes to the government.  If you have no idea about your corporate finances, then I can guarantee that you are losing money and paying too much in taxes each year.

Keeping up with good records also helps you keep up with all of those deductible business expenses that you have all year long.  You definitely want to be able to take those off the top of your gross receipts otherwise you are going to be stuck with a huge tax bill.  But if you don’t keep track of them your accountant is not going to be able to manufacture the numbers out of thin air for you.

5.  Support items on your tax return

Here is where bad record keeping kills you.  You have just been audited by the IRS or your state taxing authority and they want to see your records for those transportation expenses, materials, advertising and more.  If you don’t have anything to prove what you spent, then you are straight out of luck.  The IRS will disallow all of your expenses that you can’t prove.  So, even if they know you had some transportation expenses, if you can’t prove them, they’re gone!

April was a pretty big month at AtkinsSC.com. I had the most visitors in the history of the blog. Awesome! Anyway, here were the most visited posts for April 2008:

• Should I Send My Payments to the IRS by Certified Mail?
• Top 5 Negotiation Tips
• I Owe More than I thought - Can I still Set up and Installment Agreement?
• Independent Contractor vs. Employee Wrap-up
• I recently moved, how will my rebate check find me?
• Updated Economic Stimulus Package Information

    It seems like the year just flew by.  As I look back over the past twelve months, I am encouraged by some of the things that happened, and I am very glad that I don’t have to do some of them over.  2007 was a year of "firsts" for me and kept me very busy and extremely stressed out all year. 

    As many of my readers know, my boss (a practicing attorney for almost 30 years) took a leave of absence shortly after I began working for him.  That left me in charge of a caseload of over 225 cases varying from drafting simple wills, trying contested divorce issues, contract disputes, and of course representing people before the Internal Revenue Service.  Not to mention the other stresses of running a small business such as generating revenue, "selling" clients on using a young attorney when they were hoping to meet with an older, more experienced one, paying bills and making payroll each week, and managing my employees.  I am extremely glad that the "trial by fire" is over, but it pushed me to new limits in my personal and professional career that would have taken me years to reach otherwise. 

    As a result, I feel that I have several years of experience and I am very comfortable managing my office and staff.  Of course, it makes it easy when you have great people to work with.  It also gives me confidence that I could go out and start a law practice of my own and be successful very soon rather than the usual rule of 2-3 years before a practice becomes profitable.

    This August, my first son was born.  He is an inspiration and a joy.  I wish I was able to spend many more hours each day with him so I could watch him learn new things.  As my professional life was extremely busy, his birth made me reevaluate my priorities and the importance I place on many other things in my life.  While there is a long way to go, I hope that I will be a great dad and teach him how to prioritize his life. 

    I have really enjoyed writing this blog as well as the newspaper column that I write each week.  I hope that my writing opportunities will expand in the new year as well as many other personal and professional opportunities. 

I’m evaluating a multi-media course on blogging from the folks at Simpleology. For a while, they’re letting you snag it for free if you post about it on your blog.

It covers:

• The best blogging techniques.
• How to get traffic to your blog.
• How to turn your blog into money.

I’ll let you know what I think once I’ve had a chance to check it out. Meanwhile, go grab yours while it’s still free.

    I have been reading the classic Dale Carnegie book, "How to Win Friends and Influence People" recently and came across a line that really hit home to me.  To paraphrase, it was the statement that you can make more friends in two months by being genuinely interested in people than you can in two years by trying to make people interested in you. 

    I have heard this said another way in the past: people don’t care about how much you know until they know how much you care. 

    I believe that by showing your prospective clients that you are genuinely interested in them and helping them solve their problems you can build up your client base with great clients quicker than by tooting your own horn all the time.  I find this is pretty standard for all professionals - not just attorneys.  The feeling is that if I want someone to hire me, I need to tell them all of the great things about myself like how high I graduated in my undergraduate and law school classes, how many certifications or professional merits I have received, how many similar cases I’ve won, etc.  While this information is relevant and helps me to sell myself, what really sells the client is that you care enough to know what their problem is and that you know how to get in all of those personal highlights in a manner that shows them how it helps solve their problems rather than building up your ego in front of them. 

    How can you go about showing people how much you care?  Get involved in the community in similar areas that your law practice servcs.  This gives you an opportunity to speak to people in a non-threatening environment, without all of the formality of law books, suits and big desks, and just talk. 

    This thought goes against some advice I received in law school which was: "never have coffee with your clients."  I think the visiting attorney was trying to get through to us that we want our business relationships to remain business so we don’t internalize everything and take every set-back or loss personally.  I think there’s a way to show clients that your are genuinely interested in them and their problems without becoming so personally intertwined that we cannot focus on serving our clients.

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