December 5, 2007 Webinar “Critical Year-End Strategies” S. James Park, J.D., LL.M. Mat Sorensen, J.D. Hosted By: Mark J. Kohler, CPA, JD South Sage Dr., Suite 2, Cedar City, Utah Telephone / Facsimile © Kyler Kohler & Ostermiller, LLP 2006

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs. Instructor Notes © Kyler Kohler & Ostermiller, LLP 2006

1. Get Organized. 2. Get your QuickBooks files up to date and your checkbooks are reconciled. This will give you the opportunity to take advantage of many of the tax planning techniques discussed below. 3. Do not co-mingle your funds. 4. Do not forget your quarterly and annual filings. 5. Get ready for tax season and save yourself hundreds if not thousands. Understanding the Power of Book Keeping at Year End

S-Corporation Salary For Year End Salary/Dividend Splitting Sole- Proprietorship Limited Liability Company S-Corporation 100k Revenue 50k Expenses 50k Net Income Self Employment Tax 15.3% $7,500 (approx) Before regular income tax and itemized deductions 100k Revenue 50k Expenses 21,750k Net-Income from S-Corp No Self Employment tax on the S-Corp Flow Thru Income $3,327 SAVINGS!! (approx) Before regular income tax and itemized deductions 25k Salary 3,825k Employment taxes (approx) This is sample of what one taxpayer may choose to report as payroll. Each taxpayer should analyze their individual situation for the amount of payroll that is appropriate.

Maximize Your Retirement Plan Contribution Contribution / Deduction IRA (Traditional/Roth): $4,000 - $5,000 if you are over 50 years old. SIMPLE Plan: $10,500 - $12, (k), 403(b), 457 Plans: $15,500 with 25% match up to $45,000 SEP: Maximum $45,000 or 25% of compensation Other Defined Benefit Plans: From $ 50,000 to $300,000 Phase out limitations/Minimum Payroll amounts Single AGI Phase out: 52k – 62k Roth 99k – 114k Married AGI Phase out: 83k – 103k Roth 156k – 166k Equal to Salary amount, not to $12,500, or $15,000 if using catch up provisions Catch up provision of $5,000 Equal to Salary amount, not to exceed $45,000 Salary Calculations will be specific to each plan using the participant’s age and salary

Retirement Planning DEADLINES: Existing IRA (Traditional/Roth) contributions: 4/15/2008 Traditional to Roth conversions: 12/31/2007 Employee contributions to a 401(k): 12/31/2007 Employer contributions: By tax filing deadline, including extensions Note: In order for a self-employed individual or an employee to make a contribution in 2007 or take the accompanying deduction, the Plan must be adopted (or created) by 12/31/2007.

Maximizing Medical Expense Deductions - Insurance may be deductible on 1040 if self-employed Itemized Deductions Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) - Everything else limited to 7.5% AGI - Must maintain high deductible insurance policy - Must utilize 3 rd party admin - Fixed payments, balances carry forward. - $2,850 Individual - $5,650 Family - No insurance requirement - Self-administered - No limits - Reimbursement procedure THE HEALTHY HIGH EXPENSES

Paying spouse or children before Year End S-Corp or C-Corp Director fee No SE Tax Employee 15.3% FICA Family Sole Prop or SMLLC Pay Children- NO FICA Standard Deduction $5,350 – 2007 for earned income Service or management Fee Family LLC Over age 18Under age 18 Must be owned 100% by Mom and/or Dad Retirement Plan or Health Reimbursement Plan OPTION 1 OPTION 2 OPTION College Savings Plan

Maximize Vehicle Expenses Business 2007 – 48.5 cents 2008 – 50.5 cents Medical/Moving 2007 – 20 cents 2008 – 19.5 cents Charitable 2007 – 14 cents 2008 – 14 cents - Fuel, repairs, maintenance, etc.. - Depreciation - Be aware of Depreciation limits * If 6000lb+ vehicle then deduct up to $25,000 - If Truck with 6ft bed or greater then deduct up to $125,000 * Changes for 2008 MILEAGE SUV/TRUCK DEDUCTION ALTERNATIVE FUEL CREDITS 1. Fuel Cell 2. Lean Burn 3. Hybrid 4. Alternative Fuels * $ Savings + Credits + Environment!! -Business % of Interest on Auto Loan - Business % of Interest on Auto Loan *Always keep mileage records if there is personal use

Understanding Acceleration or Deferral of Income/Expenses Generally, you should defer income if at all possible. But in certain instances it may pay to accelerate income, for example: Too many deductions: If your itemized deductions exceed your taxable income, you should accelerate as much income as possible to fully utilize them. Change in income level: Anticipated changes in employment or gains from the sale of assets, etc. next year that could bump you into a higher bracket, making the tax on the accelerated income lower this year. Change in filing status: An upcoming marriage or divorce that will put you in a higher tax bracket may warrant the acceleration of income this year.

Understanding Acceleration or Deferral of Income/Expenses Here are a couple examples of how to do it: Year end bonus: Negotiate with your employer the timing of the bonus. Collect receivables: The timing of your collection may be critical. Payment of expenses: Prepay or defer. Timing, timing, timing. Incentive Stock Options: Exercise the option and dispose of the stock (it has to make sense). IRA or Plan Withdrawals: In the event that you are over 59 ½, you might consider making withdrawals. Installment Notes: The sale you made in a previous year can be undone if you need the income this year rather than in the future. (Early pay-off; Use the note as collateral for a loan; or Sell the note to a third party) Any of these will trigger the otherwise deferred gain. Dividends: Timing, timing, timing.

Utilizing Cost Segregation and Depreciation With Cost Segregation Without Cost Segregation Assumption- $260,000 residential rental purchased in 2007, with a Land value of $65,000 (25%), $20,000 in 5-year property, and $24,000 in 15-year property. Remaining $151,000- Building. Taxpayer – 30% tax bracket (25% Federal – 5% State) Beware of Depreciation Recapture at Ordinary Rates! Depreciation Expense- $31,662 *Potential Tax Savings - $12,740 Depreciation Expense w/ §179 -$49,262 Depreciation Expense- $6,795 * Assuming 25% Federal Rate and 5% State.

Intangible Oil and Gas Drilling Cost Tax Deduction (“IDCs”) - Invest in a “Drilling Program” on U.S. Soil - Find a project with Diversity and beware of Exploratory Projects - 90% to 100% dollar for dollar tax write off - On going cash flow - Liquidity to sell interest in years to come Exchange into the investment if you choose

EDUCATIONAL EXPENSE: Buy Mark Kohler’s NEW BOOK Before year end!!! Visit for more informationwww.lawyersareliars.com

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