Frazier & Deeter, LLC

Recent Articles

The $250,000 Question
Catalyst Magazine
December 17, 2008

2 Votes for Slow Change
Atlanta Journal Constitution
November 9, 2008

Frazier & Deeter Rises to Accounting Today's Top 100 Firms List

The 2008 Practical Accountant Practice Innovation Awards: Recognizing Distinctive Firms' Achievements

Hot Tips for Financial Planner's Tax Season Prep
Planner- AICPA PFP Section
January/February 2008

The $250,000 Question
Catalyst Magazine
December 17, 2008

By Collette McKenna Parker

Small business owner Brent DeMark worried when Senator Obama won the election; he had read about Obama's proposed tax changes to small businesses and was concerned those increases might put him out of business. DeMark feared that he was being mistaken for the wealthiest portion of the country, when in reality he is just earning a living and providing jobs.

There are approximately 830,000 small businesses in Georgia, according to the Small Business Administration. Of those, 173,804 had employees (but fewer than 500) in 2005, representing 97.9 percent of the state's employers and 46.4 percent of its private-sector employment. These small businesses are clearly the lifeblood of our economy, so what would happen if taxes were raised? Entrepreneurs create jobs and promote innovation, much of which is later duplicated by larger companies and mass marketed to the world. Raising taxes can preclude these innovations and force companies to cut employees. So what does president-elect Obama really plan to do regarding small businesses?

For the moment, say most experts, not much. Considering the current economy, many of the plans to raise taxes he discussed during the campaign will have to wait. But once the economy begins ticking upwards, here's the breakdown of Obama's small business tax plan.

Main Street
Thanks in part to Joe the Plumber, most Americans are now aware of Obama's plan to increase the tax rate of small businesses that net $250,000 or more in revenue each year - that's after deductions. Currently, the tax rate for these companies is 35 percent; Obama plans to raise it to 39.6 percent, so it would be an increase of 4.6 percent.

There are two problems for small businesses with this tax increase: Firstly, many small businesses that make $250,000 need a solid cash flow to purchase inventory and keep the business going. Inventory, however, is not deductible until it has been sold. So that same revenue that allows a company to buy inventory now places them in a higher tax bracket.

"A lot of businesses that need cash for their business will have to pay a higher tax rate," says Mike Whitacre, a tax business line leader for BDO Seidman's Atlanta office. "But these businesses are plowing the money back into the business. The company might make $400,000 in revenue in a year, but only put $100,000 in the owner's pocket. They have to buy inventory and probably have other cash drains, but they're going to be taxed on $400,000."

These businesses will potentially have to borrow money against their inventory just to pay taxes, he says, and, "That's where the management aspect comes into play." Stronger businesses will be able to manage their cash flow in a way to stay afloat.

The other problem with the $250,000 magic number is that many small businesses operate what is known as a "flow through." For S Corporations and LLCs, the business revenue is allowed to flow through straight to the owner's personal account. This essentially means that the owner's income is the same as the revenue of the company. This presents a similar problem in terms of cash management. The business owner might only be keeping $100,000 in salary and putting the rest of the money back in his business, but because of the flow through he now has to pay taxes on the $400,000.

"These rates are individual tax rates, but what's happened in the business environment is business income is showing up on individual's tax returns and subjected to individual tax rates," says Whitacre. "That's what people don't always understand. They think, 'We're going to raise taxes for the rich guy,' but for a lot of these people - it is business income. Not just some guy making $250,000 on a pay check working as the CEO of a bank. This is about a lot of business income flowing through to personal returns being subjected to an individual tax rate. It's not so simplistic."

Lowering Corporate Taxes
So while the intention is to raise taxes for small businesses, Obama's plan actually includes proposals to lower corporate tax rates for non-pass through entities. The U.S. corporate tax rates - 35 percent -- are high compared to rest of world, and it's viewed as a problem for competition in attracting new companies to the U.S. If other countries have much better rates, we lose new businesses. "There's a drum beat to lower corporate tax rates," says Whitacre. So Obama would be lowering the corporate tax rates but making up for it by raising the personal income of people making more than $250,000.

Business owners might consider switching to a C-Corp to save potentially 10 percent on their taxes. In the last 15-20 years, many small businesses have changed from a C-Corp to an S-Corp or an LLC for the lower tax rates. Now, we could see a reversal of that trend, and have more small business set up as a C-Corp.

The one disadvantage of a C-Corp for small businesses, and especially entrepreneurs, is when it comes time to sell the business you get double taxed. Entrepreneurs will have to weigh the cost of paying taxes on the sale of their business with the 10 percent reduction in annual taxes to see what entity works best for them.

Though these changes would have economic impacts on small businesses, much of the consideration for implementing higher taxes will be political. "We believe that if there are any tax increases that it probably will not come in 2009," says Roger Lusby, a partner with Frazier & Deeter, LLC, who specializes in tax services for small businesses. "I think Obama will still increase taxes, but be wise enough not to increase taxes until they see an uptick in the economy." If the economy stays sour, Obama will likely keep the Bush tax cuts until they expire on their own in 2011.

For small business owners, Obama has floated the idea of a $3,000 refundable tax credit for 2009 and 2010 for each full time employee added to the workforce by an existing business, as an incentive to hire additional full time people.

Another interesting proposal to watch for is a limit on deductible executive compensation. The idea is to cap it at 25 times the lowest paid employee. "Does that mean that small business would fire the lowest paid people and outsource that work? Or raise lower paid people's wages to raise the executive's compensation?" asks Lusby. Such a law has never been passed before, and would surely inspire some debate.

2 Votes for Slow Change: Economy’s woes, Atlanta execs say, call for careful stance on fiscal policy
Atlanta Journal Constitution
November 9, 2008

By Tammy Joyner

David Deeter
Managing partner, Frazier & Deeter, a 180-person CPA-based firm in Atlanta.

Q. What kinds of fiscal policies should President-elect Obama pursue, given the economic crisis?
A. My bias would be to have him delay for one year any income tax increases that he talked about during the campaign. Likewise, he shouldn’t implement for at least one year some of the additional spending activities – particularly the big changes in health care – that he promised during the campaign. The earth is still shaking economically. Raising taxes and increasing spending on social-type programs is dangerous.

Q. What is the foremost concern for your business and what could the new president do about it?
A. We serve our clients in tax and income tax matters, so our foremost concern is how our clients are doing. Our business is really tied to how well our clients do. If the business community has some comfort that President-elect Obama is going to govern from a centrist fiscal policy, then people [in the business community] will have confidence. There’d be less nervousness that things won’t be radically changed.

Q. Will you be hiring, firing or maintaining existing employment levels over the next six months to a year?
A. We’re one of the top 100 [CPA] firms in the country. Our plan is certainly to grow in ’09. We’ll definitely be hiring in the next six months to a year. There just seems to be increased opportunities for large, local CPA firms.

Q. The government has bailed out the financial industry with a $700 billion package. Are there any other U.S. industries too big to fail? If so, why? If not, why not?
A. We have some chance of the bail-out not costing us that much. Most of it is going to preferred stocks in large banks. So it’s an investment really. As far as other industries too big to fail, I’m very concerned about the auto industry. If they fail, the ripple effect could be devastating. We ought to consider a bailout for the auto industry.

Frazier & Deeter Rises to Accounting Today's Top 100 Firms List

(Atlanta, Georgia - March 18, 2008) Frazier & Deeter has risen to Accounting Today’s Top 100 Firms List for the first time in the firm’s short 26 year history. Accounting Today, a national trade journal focused on the CPA industry, annually ranks the Top 100 CPA firms in the country based on annual revenue, growth rates and other factors. Frazier & Deeter ranked 97th.

Accounting Today also reports on firms by region and ranked Frazier & Deeter 18th largest firm in the Southeast in the Top 100 Local Firms by Region report. Frazier & Deeter was only one of two Georgia firms to make the list.

The firm’s high rankings in 2008 are primarily due to its rapid growth and 17.12 percent increase in revenue from the past year. Only a small percentage of the firms who have received this honor have achieved such growth without merger activity.
Accounting Today's eagerly anticipated Top 100 Firms report ranks the largest U.S. Accounting firms by revenue, offering both a wealth of statistical data and insightful analysis of what makes the best firms tick, as well as their plans for the future.

Frazier & Deeter

Partners/Staff: 19/180

www.frazierdeeter.com

Frazier & Deeter �Strategic Strikes� initiative has done wonders to boost the Atlanta firm's growth, using �a person who is a specialist in a service area we have not previously provided to our client base.�

The firm has added specialists in litigation support; REITs; public company auditing; state and local tax; employee benefit plan auditing; IT auditing and consulting; and Sarbanes-Oxley 404 services.

Strategic Strikes candidates must be adept at building relationships internally and externally to generate additional sources of revenue directly from specialty areas, cross-sell services, and focus on securing additional talent for the service area.

The litigation support team has also added more than $500,000 in billings, with a 98 percent realization rate, and clients have been attracted to and added to the firm's affiliated wealth management group.

The IT and governance services group, similarly, has procured close to $1 million in revenue for FY 2007, and the strategic strikes teams have, furthermore, recruited five �specialist� employees in the last year.

The 2008 Practical Accountant Practice Innovation Awards: Recognizing Distinctive Firms' Achievements
Practical Accountant
September 2008

This is the ninth year that Practical Accountant's Innovation Awards recognize firms that take the lead in developing new or improved services and in promoting efficiency in the practice of public accounting. We do so in order for CPA firms to compare and contrast what they're doing with what other firms are doing, as well as encourage them to think about innovations they can implement.

This year we're proud to recognize 32 firms. They are many sizes, from a few employees to staffs numbering in the thousands, and they created niches in hot new areas, honed seminars and other offerings for marketing, redefined themselves and their brands, took groundbreaking steps to attract and retain talent, and employed cutting-edge technology. They are a creative group, many of them previous winners, and some firms won for more than one innovation.

Hot Tips for Financial Planner's Tax Season Prep
Planner - AICPA PFP Section
January/February 2008

By Roger W. Lusby III

Many of you serve your clients in tax matters as well as in financial planning. In addition, factoring the impact of tax laws – both present and future – into your financial planning is critical. Planner talked with three tax experts about their best ideas for 2007 tax season preparation. Here’s what they recommend.

Art Auerbach, CPA, is a tax director with McLean, VA-based Goodman and Company, LLP, where he specializes in tax consulting and financial planning for individuals and closely held businesses. He was recently a presenter at the AICPA Tax Division’s web-cast, 2007 Individual Income Tax Update, which reviewed individual taxation issues for year-end 2007 and beyond.

The central theme of Auerbach’s advice to Planner readers? Documentation. Not just the records you need to prepare a return, but those you will need to support the positions you take on the return. Watch out for the following issues as well, he says.

The reported basis for securities sold is a hot issue in the $350 billion tax gap discussion. The Treasury Department and IRS believe that tax-payers who report gains and losses don’t always produce an accurate basis for their transactions, so you’ll need sufficient documentation for the calculation of the basis taken. Tricky basis areas include a taxpayer who has inherited stock, sold it, and has no idea what the basis is.
On December 27, 2007, President Bush signed into law the Tax Increase Prevention Act of 2007, which increases the AMT exemption amounts through 2007. (The new amounts, before the phaseout, are $44, 350 for single filers and $66,250 for married couples filing jointly.) However, the future rules governing AMT – including whether it will be eliminated as part of a tax reform package – remain a mystery. In some instances you and your clients simply won’t know which way to go. In this climate, be sure to protect yourself by putting your client advice in writing and including a caveat that the advice is based on the statutes, rules, and regulations as of the day you give it.
Here’s an item that may hit close to home: Sole proprietorships are under great scrutiny by the IRS, which believes they generate one third of the tax gap. Of particular interest are Schedule C on Form 1040 and improper home office-based deductions.
Another issue to note is the deductibility of the interest on home equity loans. On Schedule A of Form 1040, interest on a home equity loan of up to $100,000 is automatically deductible, regardless of the use to which the funds are put. Not so with the AMT, where such interest is not automatically deductible.

Roger W. Lusby, III, CPA, CMA, AEP, is a partner in the accounting firm Frazier & Deeter, LLC in Atlanta, GA, where he works with business owners and high net worth and high-income individuals on tax and estate planning. He also works closely with the partners at Frazier & Deeter’s wealth management arm. Lusby points out the following tax law issues as particularly important this year.

2007 is the last year in which clients 70 ½ and older can make charitable donations directly out of their IRAs. These donations – which have an annual cap of $100,000 – qualify toward the required minimum distribution amount. However, they are not included in income, so clients making these donations cannot take a charitable tax deduction.

Beware, Lusby has found that some brokerage houses incorrectly reported such donations on 1099s in 2006, the first year that the rule was effective. Some brokerage houses reported the $100,000 distribution as taxable even when the taxpayer had given it directly to a qualifying charity. The charitable donations rule is effective only for 2006 and 2007. While charitable organizations are lobbying for the rule’s extension, Congress has not made a decision as of this writing.

Beginning in 2007, non-spouse beneficiaries can roll over distributions that they receive from a deceased person’s retirement plan. The previous rule extended only to surviving spouses. Remind your clients that beneficiaries should not comingle such a rollover IRA with one of their own because these IRAs have different distribution rules.
Cash charitable donations made in 2007 are not tax deductible unless the donor has a record of the donation in the form of a written letter from the donee.
2007 marks the beginning of a refundable AMT credit. Taxpayers who have an AMT credit equal to $5,000 or 20% of the unused credit. This new law won’t benefit your wealthier clients, however, because it phases out at $156,400 for single filers and $234, 600 for married couples filing jointly.
Finally, Lusby recommends that you encourage clients to consider making nondeductible IRA contributions with the aim of converting these traditional IRAs to Roths in 2010 when the income limitation on Roths ends. Keeps in mind that there may be valid reasons for not converting a client’s IRA, and the possibility of future tax law changes always makes “pre-paying” taxes risky business. Carefully review all relevant issues with the client before making a recommendation, and document your reasons for your decision.

John Battaglia, CPA, is a director in Deloitte’s Private Client Advisors practice in New York City. In this role he handles tax compliance and planning for high net worth individuals. As Deloitte’s national individual tax competency leader, he is in charge of communication technical and proves information to the firm’s national practice regarding individual tax. Battaglia talked with Planner about ways to strengthen client education and interaction as you head into tax season.

Turn 2007 record-keeping disasters into inspiration for superb organization in 2008. As your clients gather the information you will need to prepare their 2007 tax returns, invariably some will find themselves unable to locate pertinent records, forms, and so forth. You can use this frustrating situation to educate your clients about the importance of getting organized right out of the gate in 2008 – and staying current throughout the year.

Explain to your clients that the tax environment in becoming more complex, with constantly changing laws. Estimated tax payers should be particularly vigilant about keeping up with their financial situation throughout the year. Anyone with withholding can also benefit from good record keeping, which can prevent them from making an interest-free loan to the government. Also, a flurry of tax planning at year’s end has its downsides. Clients may not have time to accomplish tax-saving measures. And few of us are adept at remembering in March 2009 what we did in January 2008.

Develop third-party relationships to help you find necessary information. Preparing a return may be the easiest thing you do, Battaglia says. The hardest may be getting the information you need. Battaglia finds having good contacts with tax directors from relevant companies – those his clients have invested in or worked for – invaluable to his work. Often there is information vital to tax preparation and financial planning that your clients don’t have the knowledge, time, or interest to gather. Your third-party contacts can provide you what you need, such as the basis for securities that your client sold, and answer complex questions about stock options, retirement plans, etc.

It can be tough to get records from current and former employers, so form relationships with benefits administrators, payroll administrators, and tax directors. You’ll also save time by going directly to the source instead of playing ping-pong with your client. Obtaining permission to have third parties mail a client’s records, such as brokerage statements and 1099s, directly to you also saves time.

Battaglia echoes Auerbach’s advice about providing tax and financial planning services in an uncertain climate. He emphasized the importance of making your clients aware of potential tax law changes and ensuring that clients are part of decisions made in this unclear environment.