Tom's Blog

Some of you know that a couple of years ago I lost a serious amount of weight. I went from 212 lbs to 172 lbs. It's never an easy task to lose 40 pounds, but especially not when you are in your late 40's. Yes, it took a lot of will and determination, but it took one more thing - Accountability. I had to be accountable to someone. I chose my son, who was also trying to lose some weight.

At the time, I vowed that I would never gain the weight back and would continue to work on this until I reached my ideal weight according to my doctor - 165 lbs. Well, I stopped being accountable to my son and here I am two years later with what can best be described as "weight creep." My weight is creeping back up. I'm at 177 lbs. as of this morning. But I am determined not to let this get out of hand. So, I am going to be accountable to someone.

This time I am going to be accountable to you, my readers. It's a very scary thing to be accountable. You don't know for sure whether you will be successful. And failing in a public forum such as this blog could be disastrous. But when you really want to be successful. When it's more important to you than any possible embarrassment. That's when you want to be truly accountable.

So, I'm going to be accountable to you. I will share my progress every Monday morning. Of course, I will be measuring my weight on a daily basis. And I don't expect it will go down every day. There are variations such as water retention and muscle growth that can make it go up. But I do expect weekly weight loss.

Along with accounting for my weight to you and measuring it, I need a goal to go along with it. You might think that a specific weight, 165 lbs, might be the goal. But I have found that I need a goal that is more rewarding than just this one number. In this case, I have two goals beyond the weight that require the weight loss to accomplish. The first is a size 32 waist. I have always wanted to fit into a size 32 since I first started putting on weight.

The second goal is to complete an olympic length triathlon in less than 2 1/2 hours. I did my first olympic triathlon this past October and completed it just under 3 hours. So, I have a 1/2 hour to trim off. Since my run was horrible, most of this will come from a reduction of my running time and the rest will have to come from my bike time. My swim time was pretty good and realistically I can probably only shave off a few minutes on my swim time.

I am counting on you, my readers, to hold me to these now very public goals. Let me know what you think and hold me accountable for my results.

You may be wondering what all of this has to do with business and wealth. After all, this is a business and wealth blog, not a health and fitness blog. Stay tuned tomorrow for more. For now, ask yourself this question - ARE YOU ACCOUNTABLE?

Warmest regards,

Tom

Yesterday, I opened myself up to the world and committed to being accountable for my weight to you. Today, I answer the question of what being accountable for my weight has to do with you and your wealth.

The answer is quite simple. In order to achieve ANY goal, you must be accountable. The question is - to whom? Are you going to be accountable to your spouse? To your children? To a friend? Ultimately, of course, we need to be accountable to ourself and to God. Unfortunately, these two are the people we lie to most easily. We lie to ourselves every time we spend money on some doodad that we don't really need or even want that much. And we lie to God constantly - whenever we do something we know isn't right.

When it comes to wealth, may I suggest you be accountable to your wealth coach? And who better for a wealth coach than someone who actually knows something about being accountable for wealth - your accountant? What? Be accountable to my accountant? At once, this seems odd and obvious at the same time.

After all, your accountant is the expert at accountability. The problem for most people is that we spend lots of money on our accountant at tax time and we never use the information our accountant produces for anything productive. That's right - tax returns are not productive. Of course, with the right accountant, properly prepared tax returns can reduce your chance of being audited by the IRS and can even reduce your tax bill. But the fact of preparing a tax return is not productive in and of itself.

But the information that goes into the tax return is valuable information and with the right reporting, you could use this information to measure the results of your income and wealth creation and to be accountable for your financial actions.

Stay tuned for more on how to measure your financial activity and how to use your accountant as a wealth coach so you can be accountable and, as a result, successful in achieving your wealth and income goals.

Warmest regards,

Tom

P.S. - Someone asked me yesterday for the target date of my weight loss. My goal is to be 165 lbs on May 3, 2008, the date of my next triathlon.

This month, our School of Tax Strategy is focused on S corporations. An S corporation can be a terrific entity for an operating business. It is a "flow-through" entity, so there is only a single tax on the income - at the shareholder level. And there can be significant payroll tax savings to using an S corporation. One of the questions I received this month about S corporations is the following:

"If my S corporation owes me money, should I take cash out as a loan repayment first and wait to take a salary & distributions until it is fully repaid?"

This question comes up in many start up companies. When you are first starting out, it is likely that you had to put in some money to pay expenses until the business became profitable. When the business starts to be profitable, you have money that you would like to take out.

At first glance, the answer to this question seems to be "Yes." After all, a loan repayment is not subject to social security taxes like salary. If the money that's available came solely from the profits of the business, you are probably safe taking it out as a loan repayment.

However, there could be an adverse tax consequence to the loan repayment. Let's say, for example, that you had losses in your first two years of operation. These losses were funded by your loans to the company. Let's say that in year 3, you obtain a bank loan. You are still operating at a loss or break even, but the bank has decided to loan money to the company and you want to take it out to pay some personal bills.

Your first inclination may be to pay back your loan to the company. The only problem is that if you do this, you will likely pay tax on the loan repayment. Why? Because in an S corporation you do not receive tax basis for loans to the company from outside parties. So, you received basis for your loan to the company. Then, you took losses on your tax return the first two years and reduced your basis in your company. At least some of that basis came from your loans to the company. Now, your loan basis is less than the face amount of your loans. As a result, when you pay back these loans, you could have capital gains from the repayment.

If this seems a little complicated and confusing, IT IS! The answer is to talk to your CPA prior to taking out the money. Have them run through the calculation to determine the best way to classify the money you take out for tax purposes. Otherwise, you could have a surprise tax bill come April 15th on the capital gains from the loan repayment.

So be sure to stay in contact with your CPA throughout the year and be sure you learn the rules for taking money out of your S corporation.

Warmest regards,

Tom

So it's been a week since I started my diet. Thanks for all of your positive comments to me and encouragement so far. I am happy to report that after one week, I am down almost 2 pounds. That means I have accomplished 15% of my goal in just the first week. And I owe much of it to the accountability factor.

Everyone who has ever been on a diet knows how easy it is to begin a diet and how hard it is to stick to it. Accountability is all about sticking to it. Because I am accountable to you, I think twice before eating a cookie or piece of chocolate. Not easy at any time, but especially difficult during the holiday season when we are bombarded with great food and treats.

I found two other effects of being accountable to you. First, I found that I did not put off my work outs. Knowing that this morning I would have to account to you, I made sure that I got in my work outs last week. Second, I was careful to weigh myself every morning. I did miss one morning, but 6 out of 7 is pretty good. By weighing myself I received a report each day of my progress. I also found out just how bad I am over the weekend. I was showing more weight loss on Saturday morning than I did this morning. (Weekends have always been a problem for me - too much proximity to the kitchen on weekends.)

Later this week I will talk more about reporting and its effects on our wealth. Just like my report from the scale, the proper report on our finances can keep us moving and can tell us a lot about when we are doing well and what activities help us or hinder us in our progress.

SPECIAL ALERT! - Tonight I am doing a FREE teleseminar on 5 Simple Steps to Permanent Tax Savings. I encourage all of you to register at http://www.provisionwealth.com/seminars. I am confident that you will find this to be very educational. While you are at it check out our new Tax Strategy product that is being offered for a very limited time (10 days ONLY) at http://www.provisionwealth.com/products. Our Accelerated Winter Course for the School of Tax Strategy is a wonderful opportunity for you to learn how to create your own personal tax strategy and create thousands of dollars of permanent tax savings. So, join us this evening for the FREE teleseminar and REGISTER NOW for our Accelerated Winter Course.

Warmest regards,

Tom

My friend and client, Bill Lyons, asked the following question as a comment to my blog on Year End Tax Planning.

“Our mortgage team just got picked up by a federal charter. We are really excited about this move as we are now in all 50 states and have the backing of a bank.
However some of the team is concerned b/c under CA law if they have a real estate license they can act as an independent contractor and be paid 1099. The OTS and HUD/FHA requires all agents of the bank to be W2 employees. Not to mention potential legislation coming down on moving the entire mortgage industry that way. Can you explain the difference in terms of tax ramifications of 1099 vs W2?
I think a lot of people think that if they get a check in full without taxes being taken out that they are in essense making more money and are saving money on taxes.

Bill’s right – this is a very confusing area of the law for most people. Without proper planning, it is very expensive to receive your income on a 1099. Not only do you have to pay income tax on the 1099 income (and with no withholding, you need to be sure to set aside money for your quarterly estimated tax payments), income received for services reported on a 1099 is subject to self-employment tax (Social Security tax) on the full amount. On the other hand, if you are a W-2 employee, you pay ½ of the Social Security tax and your employer pays the other half. So you are really receiving a benefit by being a W-2 employee.

With proper planning, there are some advantages to receiving income as an independent contractor under a 1099. For more information, I suggest you register for our School of Tax Strategy Accelerated Winter Course that will only be offered until December 20th. Join our School of Tax Strategy now and receive over $21,000 of Strategic Tax Consulting for only $997. Register at http://www.provisionwealth.com/products.

Save taxes now through proper knowledge and planning.

Warmest regards,

Tom

I mentioned on Monday that one of the secrets to weight loss is stepping on the scale each morning. The information you receive from the scale is critical to monitoring your weight loss progress. Similarly, getting the proper data about your financial situation is critical to monitoring your wealth accumulation progress.

But getting the raw data will not make the same impact as getting the right information in the right format via a good report. Yes, I can monitor my weight by stepping on the scale each morning and in my mind comparing today’s weight with yesterday’s weight. But what if I could get a report from the scale that told me even more? What if I could program the scale to automatically tell me how I was doing compared to my goal? What if the scale could report to me the amount of water I lost/gained or the amount of fat I lost/gained? That information would be even better than simply knowing my weight and would allow me to lose weight more efficiently.

The same is true for our financial reporting. The first step in financial reporting is to have accurate data. Just like we want to have an accurate scale to report our weight. Accurate data comes from good accounting. If you do not have good accounting, no report in the world can get you the information you need. Remember – garbage in = garbage out.

But even if you have good accounting, that doesn’t mean that you are getting the information you need from that data. Most of us do not have the time or inclination to do a detail review of our financial data every day or even every week. Good reports can solve this problem. That’s why in our Strategic Wealth Coaching, we spend an entire month going over reporting and how to create reports and how to get team members to produce the reports we want.

Get more on reporting from ProVision’s Wealth Strategy U at www.provisionwealth.com/wealthu.

Warmest regards,

Tom

Last week, the Senate passed the Mortgage Relief Act (MRA). Now it goes back to the House for a vote. Since the Senate made some changes, there likely will be a Conference Committee (members of both the House and Senate) go through it before it gets finally passed. Today, I want to give you an overview of this legislation as initially proposed and the portion that has been voted on and approved by both the House and the Senate (and which will surely be included in the final bill). Tomorrow, I will comment on the new provisions put in by the Senate, as they are significant for a wide range of people.

As originally proposed, the MRA was intended to provide tax relief to people who receive debt forgiveness as a result of foreclosure or renegotiating their loan. There are three primary provisions of this act.

Tax Treatment of Debt Forgiveness: Currently, if a person receives debt relief, the amount of the relief normally is included in their income for tax purposes. Under the MRA, if the debt relief related to their home mortgage, and the mortgage interest on that debt is deductible, then the debt relief IS NOT included in their income for tax purposes.

Deduction for Private Mortgage Insurance (PMI): Currently, PMI is deductible, subject to phase out for adjusted gross income in excess of $100,000. This provision is scheduled to sunset (go away) after December 31, 2007. The MRA extends this deduction through 2014.

Exclusion of Gain on Sale of Residence: Currently, gain on the sale of a personal residence is excluded from Gross Income up to $250,000 for a single individual and $500,000 for a joint return if the property is used as a primary residence for any two of five years prior to the sale. The MRA modifies this provision to tax gain from “nonqualified use.” Under the bill, any time that the property was not used as a primary residence (e.g., rented) prior to the taxpayer moving into the house does not qualify for gain exclusion. This means that if you purchased a property, rented it for three years, moved into it and lived in it for two years, and then sold it, only a part of the gain would be excluded. In this instance, only 40% of the gain could be excluded.

HOWEVER, you do not get punished if you turned your residence into a rental property and then sold it. So, in our example, if you lived in the house for two years, then turned it into a rental property and held it for three years and then sold it, ALL OF THE GAIN would be excludable up to the normal limits.

Stay tuned tomorrow for the important amendments made by the Senate to this legislation.

Warmest regards,

Tom

P.S. – For those of you following my weight loss, I will give you an update on Wednesday.

In passing the Mortgage Relief Act (MRA), the Senate made some significant changes that will affect many taxpayers, and not all for the good.

Partnership Failure to File Penalties: Currently, a partnership that does not file a timely tax return is subject to a penalty equal to $50 per month multiplied by the number of the partners in the partnership. Under the MRA as proposed by the Senate, this penalty would increase to $85. So be sure to get those partnership returns timely filed.

S Corporation Failure to File Penalties: Currently, there is only a $100 penalty for failing to file an S Corporation return and this is rarely, if ever, imposed by the IRS. The MRA adds a penalty equal to the partnership return penalty. So, any S corporation that does not file on time will receive a penalty of $85/month per shareholder. THIS IS A MAJOR CHANGE that will affect thousands of taxpayers. Be sure to file proper extensions in March and get those S corporation returns filed by September 15th.

Gain on Sale of Residence Exclusion for Widows and Widowers: The MRA amendment by the Senate adds a nice little provision for those recently widowed. For two years following the death of their spouse, the exclusion is increased from $250,000 to $500,000.

These provision all now need House approval. Based on my experience, I see no reason the House would not approve them and would expect this bill to be enacted pretty much in its current form. I’ll let you know what happens as it moves through the Conference Committee and the floor vote of the House.

Warmest regards,

Tom

I continue to get many comments about my weight tracking and goals. Peggy, a friend of my friend, Lois Tiedemann, recommends a tracking device put out by NuSkin using a GoWear armband that measures your calorie burn throughout the day. Michael sent me a comment (see comments under my entry "Are You Accountable) asking about my specific goals. I agree with Michael that specific, measureable goals are essential.

I mentioned a few of them previously, but here are a few more. My next triathlon is set for May 3rd in Rocky Point, Mexico. That is the date for my weight loss goal (down to 165 lbs) and my waist goal (32"). I also have a goal to cut my time to under 2 1/2 hours from just under 3 hours. Most of this will come from the run, as I did not train for the run on my previous triathlon and was hobbled by swollen tendons in my heals.

Michael also asked what products he can buy from me. What a great question!!! Please go to http://www.provisionwealth.com/products. We have a terrific product, our Accelerated Winter Course for creating your own personal tax strategy, that is only available until tomorrow. So act now, and get this amazing course that gives you the power to dramatically lower your income taxes.

Now for the report. Despite going on a business trip this past weekend, I am down to 173 lbs. I'm pretty happy with that, given that I went to two family holiday parties and twice ate at my favorite burger joint, Crown Burger. (If you ever get to Salt Lake City, you really have to go to Crown Burger and try their specialty burger, called the Crown Burger.)

Keeping accountable to all of you and having specific, measureable goals has been great to keep me on track for my weight loss. But how many of us have specific, measureable goals for our wealth? Do you have a goal for your wealth? Do you have a goal for your income? Do you have a goal for your cash flow? Do you have a goal for your tax liability? Tomorrow, I will explore these goals more. For now, just remember that "Financial Freedom is Closer Than You Think" but you have to have goals and accountability to reach your financial freedom.

Warmest regards,

Tom

President Bush signed into law the Mortgage Relief Act of 2007. I mentioned the major provisions of this legislation in my blog on Monday entitled "Mortgage Relief Act Passed by Senate." The House left he Senate's version unchanged. He also expected to sign the AMT relief bill.

What does the MRA mean to you? Simply, if your primary residence is foreclosed upon or you do a short sale of your primary residence, then the debt forgiveness (up to $2 million) will not be included in your taxable income. This provision is retroactive to the beginning of 2007.

For real estate investors, this is very good news. It takes away one big barrier that sellers might have to doing a short sale. What's a short sale? Effectively, it's a sale of a house by means of someone (you or the buyer) negotiating a reduction in the note with the lender(s) prior to the sale. The buyer purchases the note(s) from the lender(s) and then buys the house from the seller for an amount equal to the note(s). This prevents the homeowner from the negative effects of a foreclosure and the investor gets the property at a good price.

As I mentioned last Monday, the other major provision of this law is to increase the late filing penalties for partnerships and S corporations. In effect, Congress is giving a gift to one set of taxpayers who were unwise and penalizing other taxpayers who are unwise. All in all, very bad tax policy. Penalty provisions should never be used as revenue raisers. I understand the public policy behind the bailout, but I don't agree with using tax penalties to raise the revenue to pay for it. Just remember to get your partnership and S corp returns filed on time this year (fortunately, the penalty provisions are NOT retroactive).

As for the AMT relief, Congress raised the exemption amount to $66,250 for joint filers. This new exemption is good for one year. They only did this for one year because they did not have a revenue raiser to offset the decrease and the House wanted the bill to be revenue neutral.

I hope you all have a wonderful Christmas. I'm looking forward to spending it with my wife and two grown sons.

Merry Christmas!

Tom

P.S. - I'm still at 173 lbs. At least I haven't gained anything so far during the holidays. More on this later this week.

It's December 31, 2007. The last day of the year and the eve of the new year. Time for some serious goal setting.

My wife reminded me yesterday that I haven't always liked goals. Maybe some of you are the same. I didn't like goals because I felt they constrained me. As many of you know, being the youngest child, I hate being constrained. Personal freedom is my most cherished possession. So, why do I like goals now? Simply because they cause you to focus and focus brings results.

The most difficult part of goal setting for me is prioritizing my goals and making few enough of them to have a reasonable chance of success for all of them. I have had the most success using the system that I learned from my friend, Jayne Johnson. I attended Jayne's goal setting course a few years ago and the results have been significant. I attribute my successful completion of an Olympic Triathlon to Jayne's methods, because it was in her class that I realized that this was a top-5 goal of mine. I believe Jayne has a class coming up (she is doing it with my friend, Blair Singer) and I highly recommend it. You can learn more at http://www.salesdogs.com/pages/workshops/goals_workshop.html.

I recommend that you focus on your top 5 goals, whether they are personal, spiritual, financial or family goals. Most importantly, don't wait to set these goals. Make sure they are measureable and attainable. Be sure to set up a reporting system and an accountability system for them such as my weight goal. (By the way, I'm just under 173 lbs - a bit on a plateau but I'm pretty happy given all of the goodies around this time of the year.)

Tomorrow, I will share my top five goals for 2008. I'm going through Jayne's methodology tonight with my wife and sons while we have some fun playing games and watching movies together. No reason goal setting can't be fun. And doing it with people you care about and who impact your success is important.

Have a Happy New Year everyone!!! Talk to you tomorrow. Be safe in your New Year's revelry.

Warmest regards,

Tom