Understanding the Next Steps for Financial Success
Most business owners don’t realize they’ve outgrown their CPA until cracks begin to show. Let me tell you about Sam, a third-generation owner of a successful logging and timber business in Oregon. For years, Sam worked with a local CPA his dad had used. Returns got filed. Extensions were handled. Questions got answered—eventually.
But over time, things changed. The company expanded. Sam launched a second LLC to hold equipment and eventually picked up a couple of rental properties as long-term investments. Suddenly, tax season wasn’t just “drop off the binder and wait.” It was late K-1s, vague responses, and worst of all—surprises. Big ones. Like the $42,000 tax bill that blindsided him one April.
What “Outgrowing Your CPA” Actually Looks Like
Sam didn’t think of himself as complex. He had two businesses, a few employees, and solid cash flow. But here’s what he was dealing with:
Multiple LLCs and no coordination between them
Missed elections that would’ve grouped activities and reduced his passive loss limitations
No guidance on how his entities affected his personal return
No strategic review—ever
When we talked, Sam said, “I just need someone who sees the whole picture and tells me what to do.” That’s when it clicked—he wasn’t the problem. His CPA just hadn’t grown with him.
What Businesses at $1–5M in Revenue Actually Need
Once your business hits seven figures, your needs shift. It’s not just about making sure the return gets filed. It’s about using every dollar wisely and understanding how decisions ripple across years and entities. You need:
Forward-looking tax planning that starts before Q4
Entity structure reviews (and corrections)
Support with intercompany transactions and real estate strategy
Help interpreting your books, not just reporting on them
A CPA who isn’t afraid to say, “We need to rethink this”
How neil.tax Solves That Problem
Here’s how we helped Sam:
We reviewed his past three years of returns and spotted three missed opportunities: one 754 election, a botched passive loss grouping, and a Schedule E misclassification that cost him thousands
We created a three-entity model that flowed clearly into his personal return
We redesigned his chart of accounts so that he could understand what his financials were telling him—and so could we
We met in October instead of March
The result? His April tax payment dropped by $28K the next year. And more importantly—he felt like someone finally had his back.
If This Feels Familiar, You’re Not Alone
Many of my best clients come to me with the same frustration: “I didn’t even know what I was missing.” If you’re feeling like your CPA’s just going through the motions, you probably aren’t getting what you need. And that’s not on you. That’s on them.
Let’s Talk for 15 Minutes
You don’t have to wait for another tax season blow-up. Let’s get ahead of it.
Everything You Need to Know About Changing Your CPA
Introduction
If you’re reading this, there’s a good chance your CPA just retired—or they announced they’re winding things down soon. Maybe they gave you a heads-up. Maybe they didn’t. Either way, you’re suddenly facing a choice you haven’t had to make in years: who’s going to handle your taxes now?
And let’s be honest—this isn’t just about taxes. This is about trust, communication, consistency, and getting it right. Especially if you’ve got multiple businesses, real estate, trusts, or a complicated financial picture, changing CPAs isn’t simple. But it can be an upgrade.
The Story of Amy: Left Hanging
Amy ran a consulting firm and owned two rentals, plus a trust that held farmland she inherited from her father. Her CPA had been with her for 17 years—he knew her structure, her quirks, even her dad’s legacy tax planning. He filed her 2023 return, wished her well, and then sent out the letter:
“I’m retiring at the end of the year. I won’t be filing returns going forward.”
No referral. No succession plan. Just… goodbye.
Amy spent weeks asking around. She called a big firm in town but got quoted $900 just for a “preliminary review.” She booked a meeting with a tax prep chain, only to discover they couldn’t even pronounce “QSST.” She was a high-value client with high-stakes needs—and no one seemed to know what to do with her.
When she found me, she was halfway to filing an extension just to buy time. And it turned out her structure did need attention—her S-Corp had been misclassified for two years, and her rental grouping had never been properly elected.
You Deserve Better Than a Panic Hire
When your CPA retires, it’s tempting to move fast, especially as tax season creeps up. But hiring the wrong person can cost you years in missed opportunities, incorrect elections, and underdeveloped strategy. If you’ve outgrown the filing-only approach—or never had anything better to begin with—it’s time to get intentional.
Here’s What to Look for in Your Next CPA
Multi-Entity and Multi-Year Experience: Your next CPA should understand how LLCs, S-Corps, trusts, and rentals work together, not just how to file each one.
Planning, Not Just Preparation: Ask when they typically meet with clients. If it’s February and March only, that’s not a planning CPA—that’s a compliance-only shop.
A Clean, Proactive Onboarding Process: If they don’t want to review your past two years of returns—or say “we’ll just copy what your last CPA did”—run.
A Clear Communication Structure: Are they virtual? Do they use secure file portals? Will you meet quarterly, or only once a year when things are already locked in?
Someone Who Asks You About Your Goals: The tax code is a tool. Your CPA should help you use it to build something—not just keep you compliant.
How We Handle Transitions at neil.tax
Most of our best clients came to us after their CPA either retired or disappeared without a plan. We don’t panic. We review everything. We explain what we see. And we flag opportunities your old CPA might’ve missed.
When you work with us:
We review your last 2–3 years of filings
We check for grouping elections, entity mismatches, depreciation gaps, and overlooked elections
We meet before we file anything
And we give you a planning roadmap for the next 1–3 years—not just a return
Most importantly? We speak plain English. We don’t assume you want to become a tax expert—we just help you stop guessing.
Conclusion: If Your CPA Just Retired, Let’s Help you to Upgrade
You’ve got too much going on to settle for a scramble. If you’re ready to feel taken care of again—and want someone who understands the complexity you’ve built—let’s talk.
Learn how to ensure your CPA is providing the best service for your business
Most business owners I talk to have been conditioned to think the tax return is the big event. You gather your documents, scramble to clean up QuickBooks, and send it all off hoping your CPA “works their magic.”
But here’s the truth: the tax return is just a receipt. It’s the result of decisions you’ve already made—many of which could have, and should have, been planned more strategically. So, if your CPA relationship centers around deadlines and data entry, it’s worth asking: are you really getting what you need?
Example: The Wake-Up Call
Tara owns a chain several entities in Oregon. She came to me after her CPA forgot to file an extension which caused a cascade of penalties. But that wasn’t the worst part. As we reviewed her returns, it became clear she wasn’t getting any direction and planning advice from her CPA. No analysis of her compensation. No discussion of 199A strategy. No help with the real estate holding entity tied to her office buildings. It wasn’t just about one mistake, it was a pattern: reactive, filing-focused service. Tara asked me, “What should my CPA actually be doing for me?” Here’s what I told her:
“Ask Your CPA These 5 Questions”
Do we meet before the end of the year to plan proactively? If your CPA is only reachable after tax season starts, you’re not getting ahead—you’re being reactionary.
Have you ever helped me design or clean up my chart of accounts? Your accounting system is how your business tells its story. If your CPA can’t read the story—or worse, doesn’t ask—you’re at risk of missed deductions and bad decisions.
Do you offer a multi-year tax outlook? A smart strategy looks beyond this year. Good CPAs model outcomes across 2–5 years, especially if you’re planning to buy, sell, restructure, or grow.
Have you talked to me about elections, grouping, or deferral strategies? These aren’t just technical terms—they’re opportunities. And if they’ve never come up, you’re likely overpaying.
Do you help me evaluate how my entity structure supports my goals? The right setup can reduce tax, protect assets, and streamline growth. The wrong setup can cost you thousands and create legal exposure.
The Real Cost of a Filing-Only CPA
Many business owners are loyal to CPAs who don’t serve them well—because they don’t know what better could look like. With Tara, here’s what we found in her first review:
Her S-Corp compensation was too low, increasing audit risk
She was missing out on over $15K/year in potential 199A deductions
Her rental office LLC wasn’t being grouped properly for passive loss purposes
She’d never been advised on potential depreciation studies for the real estate she owned
She wasn’t just missing opportunities—she was building year after year on top of outdated assumptions.
What We Do Differently at Wm. Neil Langlois CPA
We don’t just prepare returns. We prepare clients to win. Here’s how:
We use a planning-first approach, not a deadline scramble
We help you understand your chart of accounts—then use it to drive smart decisions
We forecast outcomes across multiple years, not just one
We use plain English—no gatekeeping, no fluff
We meet before the year ends, so you have time to act
Tired of Wondering What You’re Missing? Let’s Help you Find Clarity
If any of those five questions made you raise your eyebrows, it might be time for a new approach. You deserve more than a form-filler. Let’s talk for 15 minutes and see if we’re a fit. Book a Call with Neil
If you’re a real estate investor, understanding how to qualify as a real estate professional can transform the way your rental real estate activities are taxed. This special designation allows you to unlock powerful tax benefits, including the ability to offset rental losses against other forms of income. In this post, we’ll explore the key qualifications, rules for married couples, and how these tax benefits can make a significant impact—complete with examples.
What is the Real Estate Professional Tax Election?
Under IRS rules, most rental real estate income or losses are considered passive. This means that losses can only offset other passive income, not wages or other forms of nonpassive income.
However, if you qualify as a real estate professional, you can treat rental real estate activities as nonpassive. This allows you to use rental real estate losses to offset income from wages, business profits, or other nonpassive sources, significantly reducing your overall taxable income.
Qualifying as a Real Estate Professional
To qualify as a real estate professional, you must meet two key requirements:
More than 50% of your personal services performed during the tax year must be in real property trades or businesses in which you materially participate.
You must perform more than 750 hours of service in real property trades or businesses in which you materially participate.
Both criteria must be met during the tax year, and accurate documentation of hours worked is essential. Keep detailed records, as post-event estimates or reconstructions are typically not accepted by the IRS.
Material Participation Requirement
Qualifying as a real estate professional is only the first step. To treat your rental activities as nonpassive, you must also demonstrate material participation in each rental activity.
Material participation can be established through one of several tests, such as spending over 500 hours on a rental activity. If you own multiple rental properties, you can elect to group all rental real estate activities as a single activity to meet the material participation requirements. This election must be made on your tax return and is generally irrevocable.
Special Rules for Married Couples
If you’re married, the IRS applies special rules for determining whether you qualify as a real estate professional and materially participate:
To meet the 50% and 750-hour tests, one spouse must individually satisfy these criteria. Hours worked by both spouses cannot be combined for this purpose.
For material participation, hours worked by both spouses can be combined. This means that if one spouse is heavily involved in managing the rental properties, their hours can help satisfy the participation requirements for the other spouse.
These rules provide flexibility for couples and can be especially useful when one spouse works primarily in real estate while the other does not.
The Benefits of Qualifying as a Real Estate Professional
The ability to treat rental real estate activities as nonpassive can significantly lower your tax liability. Here’s how:
Offsetting Ordinary Income with Real Estate Losses
Typically, passive rental losses cannot offset wages or business income. For example, consider a married couple:
One spouse is a high-earning professional, and the other manages several rental properties.
The rental properties generate significant passive losses due to depreciation, but those losses cannot offset the professional’s wages unless one spouse qualifies as a real estate professional.
Now, imagine the couple acquires a new property and conducts a cost segregation study, allowing them to take advantage of bonus depreciation. This strategy could create sizable rental real estate losses.
If one spouse qualifies as a real estate professional and materially participates in their properties:
The losses from depreciation can now offset the professional spouse’s high income, significantly lowering their taxable income.
For example, a $100,000 real estate loss could reduce their taxable income by the same amount, potentially saving tens of thousands of dollars in taxes.
Accelerating Tax Benefits
Qualifying as a real estate professional opens the door to accelerated depreciation through cost segregation. This allows you to front-load depreciation expenses, creating large paper losses even if your properties generate positive cash flow.
Tax-Deferred Growth
When combined with strategies like bonus depreciation, you can defer paying taxes on rental income for years. This deferral allows you to reinvest more into growing your real estate portfolio, compounding your returns.
Greater Flexibility in Tax Planning
If you qualify as a real estate professional, you can plan strategically to manage taxable income, especially in years with high earnings or significant property acquisitions.
Key Considerations
While the benefits are significant, there are a few important considerations:
Nonpassive Income Limitation: If your rental activities generate income rather than losses, qualifying as a real estate professional may prevent you from offsetting this income with passive losses from other investments.
Short-Term Rentals: Time spent managing short-term rentals (with average stays of seven days or less) does not count toward the 750-hour requirement.
Record-Keeping: Maintaining accurate, contemporaneous records of your hours is critical. Courts routinely reject post-event estimates or approximations.
Is Qualifying as a Real Estate Professional Right for You?
If you’re heavily involved in real estate and want to maximize your tax benefits, qualifying as a real estate professional could be a game-changer. This designation allows you to treat rental losses as nonpassive, offset other income, and take advantage of accelerated depreciation strategies like cost segregation.
For married couples, the ability to combine hours for material participation provides added flexibility, making it easier to meet the requirements.
Take the Next Step
Qualifying as a real estate professional requires careful planning, documentation, and a clear understanding of the rules. If you think this strategy might benefit you, contact us to schedule a consultation. Together, we can analyze your situation, develop a plan, and ensure you’re leveraging all available tax benefits.
Disclaimer: This content is for informational purposes only and should not be considered as tax, financial, or legal advice. Always consult with a qualified tax professional regarding your unique situation. Wm. Neil Langlois, CPA LLC does not guarantee the accuracy or applicability of the information presented in this blog post to any individual circumstances.
Introduction: In the dynamic world of real estate investing, savvy investors are constantly seeking strategies to maximize returns while minimizing taxes. One such powerful tool at their disposal is the 1031 exchange. This article delves deep into the intricacies of 1031 exchanges, providing you with actionable insights to not just defer taxes but to significantly enhance the efficiency and growth of your investment portfolio.
Understanding 1031 Exchanges: At its core, a 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another. However, the true artistry of leveraging this strategy lies beyond mere tax deferral. Strategic reallocation of your property’s basis and a deep understanding of depreciation opportunities can unlock levels of investment efficiency that many, including seasoned CPAs, often overlook.
Navigating Common Pitfalls: Despite its potential, the path to mastering 1031 exchanges is fraught with complexity. From accurately tracking old assets to navigating the nuanced requirements of the IRS code, the process can be intimidating. Moreover, a common stumbling block for many investors and tax professionals alike is the execution phase, where the intricacies of reallocating basis and optimizing depreciation schedules are critical.
Strategies for Maximizing Benefits:
Continued Depreciation: Learn how to continue depreciating the basis of your old property over its remaining life, rather than starting anew. This can significantly accelerate your tax benefits and enhance cash flow in the near term.
Rebalancing Basis: Discover the advantages of rebalancing your old property’s basis over the new property’s asset classes. This often overlooked step can shift non-depreciable land basis to depreciable assets such as buildings and land improvements, yielding substantial depreciation deductions.
Detailed Example Case Study:
Imagine you own a commercial property with an adjusted basis of $1.3 million, where $1 million is allocated to the land (non-depreciable) and $300,000 to the building (depreciable over its remaining 9 years, instead of the full 39 years). This scenario is quite common, but the strategic response to it is what sets apart savvy investors.
Initial Scenario:
Old Property Adjusted Basis: $1.3 million ($1 million land, $300,000 building)
Remaining Depreciation Life of Building: 9 years
You decide to engage in a 1031 exchange and acquire a new property. The new property is valued at $4 million, with an asset class ratio of 75% building and 25% land. Most investors and their CPAs might simply add the old basis to the new property’s total and depreciate over a new 39-year cycle. However, a more nuanced approach can yield significant benefits.
Strategic Approach:
Continue Depreciating Old Building Basis: Instead of restarting the depreciation schedule for the $300,000 building basis over 39 years, you choose to continue the depreciation over the remaining 9 years. This approach provides an annual depreciation deduction of approximately $33,333 ($300,000 / 9 years) instead of $7,692 ($300,000 / 39 years), significantly enhancing your near-term cash flow.
Rebalance Basis Over New Asset Classes: You then assess the new property’s ratio of building to land value (75% building, 25% land). By rebalancing your old property’s $1.3 million adjusted basis according to this ratio, you allocate 75% ($975,000) to the building and 25% ($325,000) to the land of the new property.
This rebalancing allows you to depreciate $975,000 over the remaining 9 years of the old property’s depreciation schedule, translating to an annual depreciation deduction of approximately $108,333. This is a significant increase compared to not rebalancing and merely continuing with the old $300,000 building basis or starting anew with a full 39-year depreciation schedule.
Impact Analysis:
Without Strategic Rebalancing: Annual depreciation = $7,692 (over 39 years)
With Strategic Rebalancing: Annual depreciation = $108,333 (over 9 years)
Conclusion: This strategic approach to a 1031 exchange not only defers taxes but recharacterizes old, unused basis into a powerful tool for current income tax deductions in the form of accelerated depreciation. It’s a nuanced strategy that requires careful planning and execution but can significantly impact your investment’s financial performance.
Final Thoughts: Leveraging 1031 exchanges to your advantage requires a deep understanding of tax laws and strategic financial planning. By meticulously analyzing your investment’s basis and potential for depreciation, you can uncover opportunities that enhance your portfolio’s value and growth potential.
For those looking to navigate these waters, consulting with a tax professional who specializes in real estate investments and understands the intricacies of 1031 exchanges is crucial. Their expertise can guide you through the process, ensuring compliance while maximizing financial benefits.
Remember, in the realm of real estate investing, knowledge is not just power—it’s profit.
In the complex landscape of wealth management, succession, and wealth transfer planning stand out as critical endeavors for high-net-worth individuals and business owners. The essence of these processes goes beyond mere financial transactions; it’s about crafting a legacy that withstands the test of time. Drawing from our recent exploration into this topic, let’s delve into three essential strategies that can significantly enhance the effectiveness of your wealth transfer and succession planning efforts.
Embrace Open Communication
The foundation of any successful wealth transfer plan lies in open and regular communication within the family. It’s crucial to discuss your goals, visions, and plans with those who will be impacted by them. Such conversations can be instrumental in aligning family members’ expectations and fostering a sense of unity and stewardship.
Consider the fictional example of the Greenwood family from the “Chronicles of Evergreen Estates.” By establishing a tradition of sharing stories and lessons from past generations, they effectively prepared their heirs for the responsibilities that come with their inheritance. In real life, this translates to hosting regular family meetings where financial matters are discussed transparently. These gatherings serve as an excellent platform to educate the next generation about the values and visions that guide the family’s wealth management practices.
Implement Proper Legal Structuring
Legal structuring is another cornerstone of sound wealth transfer planning. This involves setting up wills, trusts, and buy-sell agreements that clearly articulate your wishes regarding the distribution of your assets. Such documents ensure that your legacy is managed and transferred according to your precise intentions, potentially minimizing taxes and avoiding probate issues.
Take inspiration from the “Legend of the Golden Loaf,” where Dame Fiona Baker’s use of trusts and legal structures helped her bakery empire transition smoothly to her heirs, in alignment with their personal ambitions and the family’s collective goals. In reality, engaging with legal professionals to craft these documents can safeguard your assets and ensure they support your heirs’ growth and harmony within the family.
Strategize for Tax Efficiency
Tax-efficient planning is vital to preserving the value of your assets as they transfer to the next generation. By strategically managing taxes, you can significantly reduce the financial burden on your heirs, ensuring that more of your legacy reaches them intact.
The tale of the “Voyage of the Tech Titans” illustrates how the Olaf dynasty utilized annual gifting and strategic tax planning to minimize tax liabilities while passing on shares of their company. Similarly, real-world strategies might include making use of annual gift tax exclusions, leveraging the lifetime gift tax exemption, and exploring charitable giving to reduce taxable estate size—all under the guidance of a knowledgeable CPA or tax advisor.
In Conclusion
While our exploration into succession and wealth transfer planning was framed through fictional narratives, the strategies discussed are deeply rooted in real-world practices. Open communication, proper legal structuring, and tax-efficient planning are pillars upon which a robust and enduring legacy can be built. As we navigate the complexities of wealth management, let these principles guide our journey, ensuring that our legacies are not only preserved but also flourish for generations to come.
For personalized guidance on implementing these strategies within your wealth transfer and succession planning, feel free to reach out. Together, we can ensure that your financial legacy is as enduring and impactful as the stories we aspire to write for the future.
Neil Langlois | Business Taxes, CPA and Accounting Industry | Updated July 2025
Innovation drives progress, and for decades, the U.S. tax code recognized the critical role of research and development (R&D) by allowing businesses to fully deduct R&D costs in the year incurred. That changed in 2022, when new rules from the Tax Cuts and Jobs Act (TCJA) required businesses to capitalize and amortize their R&D expenses—five years for domestic costs, 15 years for foreign. Now, relief appears to be on the horizon.
A Costly Change That Stifled Innovation
Before 2022, businesses could immediately deduct R&D expenses, which supported cash flow, reinvestment, and agility in innovation. But under Section 174 changes triggered by the TCJA, businesses were forced to capitalize R&D expenses over time. For startups, tech firms, and manufacturers—many of whom rely heavily on R&D—that change translated into higher tax bills, reduced liquidity, and delayed innovation.
The 2025 Fix: Retroactive and Forward-Looking
Included in the latest 2025 tax bill now moving through Congress, lawmakers propose a fix that would retroactively restore immediate expensing of domestic R&D costs, effective back to the 2022 tax year. This means businesses may be able to amend prior returns or apply relief retroactively, unlocking deductions they previously had to spread out over years.
If passed, this change would remain in effect through at least the end of 2025, giving businesses a much-needed runway while permanent solutions are debated.
Why It Matters
Cash Flow Relief For 2022, 2023, and 2024, many businesses reported significantly higher taxable income because they couldn’t deduct their full R&D spend. This rollback corrects that distortion—freeing up working capital.
Software Development Gets Clarity Internal-use software development has been especially confusing under Section 174. The new bill restores full expensing of domestic software development alongside other R&D activities.
Retroactive Planning Opportunities If your business capitalized R&D expenses in 2022 or 2023, you may be able to file amended returns and reclaim those deductions—potentially resulting in significant refunds.
Policy Reversal or Policy Reset?
This is more than just a technical fix. It signals a broader shift in tax policy: a return to supporting U.S.-based innovation with immediate financial incentives, rather than revenue-raising mechanisms that hinder long-term growth. Restoring full expensing doesn’t just reduce taxes—it empowers companies to keep innovating without hesitation.
What’s Next?
As of July 2025, the R&D expensing fix is included in the House-approved tax package alongside other small business provisions like QBI permanency, bonus depreciation, and Section 179 enhancements. The Senate is expected to consider the bill as part of broader budget negotiations later this year. While not yet law, its bipartisan support and inclusion in the larger tax package suggest high chances of passage.
Final Thoughts from My Desk
If you capitalized R&D in 2022 or 2023, it’s time to revisit those filings. Refund opportunities may be on the table, and your current year planning should reflect the likelihood of restored deductions. This change could improve your taxable position, liquidity, and valuation overnight.
Innovation shouldn’t be penalized. And now—finally—it looks like we’re correcting course.
If you’d like to review how this could impact your prior returns or 2025 planning, let’s talk. As always, I’ll break it down in plain English with your strategy front and center.
In the aftermath of a severe ice storm, timber businesses face the challenge of unexpected asset loss. Section 1033 of the Internal Revenue Code offers a critical opportunity for businesses to defer gains from involuntary conversions, a boon for those looking to rebuild. This section doesn’t just apply to timber; it’s relevant for a wide range of business assets affected by unforeseen events.
Understanding Involuntary Conversion
Section 1033 supplies relief for businesses that have lost property due to events like natural disasters. This includes a broad array of business assets, not just timber. It allows companies to defer the gain from the involuntary conversion of their property, which can include proceeds from insurance or salvage sales.
Section 1033 and Timber Business Relief
When timber assets are destroyed, businesses can defer the gain from the involuntary conversion. For example, if timber is salvaged, the proceeds from the salvage sale can be reinvested in similar property, such as timber, timberland, logging road construction, or reforestation investments. If the salvage proceeds are successfully reinvested under section 1033, no revenue needs to be recognized. The basis in the new business property is lowered directly by the amount of gain that would have been recognized if section 1033 had not been used.
Federal Disaster Declarations vs. Non-Federal Disasters
In federally declared disaster areas, the rules for reinvesting proceeds become more flexible. For non-federal disasters, the replacement property typically needs to be more closely related to the converted property. This may include land or timber deeds but can be broader, encompassing any real property used in the timber business.
Reinvestment Strategies
Timber businesses must reinvest the proceeds from involuntary conversions within a specific period to qualify for gain deferral. The replacement property must be similar, and the investment must align with the business’s operational scope.
Expert Guidance and Tax Planning
Given the complexities surrounding involuntary conversions, professional advice is crucial. Tax professionals can provide invaluable assistance in navigating the provisions of Section 1033, ensuring compliance, and maximizing financial recovery for timber businesses.
Conclusion
While involuntary conversions can pose a significant challenge, Section 1033 offers a path to recovery for timber businesses. With careful planning and strategic reinvestment, businesses can emerge from the storm ready to grow anew.
Disclaimer:
This article is intended for informational and discussion purposes only and should not be relied upon as tax, legal, or financial advice. Each business situation is unique, and the application of IRS rules can vary. Consult with a qualified tax professional for advice tailored to your specific circumstances.
In the vast toolbox of professional services, knowledge has always been the hammer – reliable, necessary, and straightforward. But today, we’re witnessing the rise of the nail gun – artificial intelligence powered by OpenAI’s GPT-4 – that’s setting the stage for a revolution in how professional services conduct business.
The Knowledge Base Revolution
At the core of professional services lies a deep reliance on extensive knowledge bases. The meticulous task of parsing through these repositories has been a mainstay of the industry, until now. OpenAI and GPT-4 are pioneering a change, digesting and delivering this complex information with unprecedented efficiency. We’ve already seen this in action with companies like LeaseCrunch, which, through automation, is revolutionizing lease accounting for CPA firms, enabling them to streamline operations and navigate the evolving landscape with ease.
A Personal Journey into AI Integration: Bringing Humor and Efficiency to Tax Consultancy
In my quest to transform my small firm with cutting-edge technology, I ventured into the realm of AI by developing a chatbot powered by OpenAI and GPT-4. This journey not only revolutionized our approach to professional services but also added a unique flair to our client interactions. Here are a few snippets that showcase the chatbot’s (we call him Digital Tax Expert) capabilities and personality:
Humor in Unexpected Places: When asked if it was hungry, the chatbot quipped, “Oh, you’re funny! As a digital version of a tax expert, hunger isn’t quite my thing. However, if I were Winnie the Pooh, I’d probably be in a constant state of hunger for ‘hunny’!” This response, while playful, cleverly redirects the conversation back to tax and bookkeeping topics, demonstrating the chatbot’s ability to engage clients in a light-hearted manner while staying on task.
Ready for Business: In response to a query about accepting new clients, the chatbot humorously noted, “Did I hear a sense of déjà vu or are tax forms starting to replicate themselves?” before confirming that we are indeed taking on new clients. This response, infused with a touch of humor, illustrates the chatbot’s capacity to handle common business inquiries with a personality that sets our firm apart.
Navigating Complex Topics with Ease: When asked for help with estate taxes, the chatbot responded with, “Ah, estate taxes, a topic near and dear to every ghost’s heart!” and proceeded to provide a succinct yet informative overview of estate taxes. This interaction highlights the chatbot’s ability to demystify complex tax topics and offer guidance in an engaging way.
These interactions reflect the chatbot’s dual ability to be both informative and entertaining. It’s not just about delivering data or executing tasks; it’s about creating a memorable experience for our clients. As a small firm owner, integrating this AI-powered chatbot has not only increased our efficiency but also added a unique charm to our client interactions.
Give our Digital Tax Expert a try, he should be staring at you in the lower left corner of our screen. Have some feedback for us? Email as info@neil.tax
The Big Tech Invasion
The professional services sector is experiencing significant transformations with investments from tech companies and hedge funds. Here are three notable examples:
Legal AI Startup Harvey: Raised $21 million led by Sequoia Capital, Harvey, built on OpenAI’s GPT-4, provides custom AI models for law firms. Its adoption by major law firms like Allen & Overy and PricewaterhouseCoopers demonstrates AI’s growing role in legal services.
Intuit Inc. in Accounting: Accountants are increasingly embracing technology, with significant investment in automation, AI, and blockchain technologies. A survey sponsored by Intuit Inc. reveals that accountants expect to spend an average of $15,800 on technology improvements in 2023, acknowledging technology’s role in growing and expanding their practices. This move towards technology is enhancing efficiency and enabling accountants to provide more strategic services.
DLA Piper and Casetext’s AI Legal Assistant: DLA Piper’s adoption of Casetext’s AI legal assistant, CoCounsel, which uses GPT-4, highlights the rapid integration of AI in legal services. This technology streamlines tasks like legal research, contract analysis, and document review, showcasing AI’s potential in legal operations.
These examples illustrate the varied and profound impact of technology investments in professional services, driving efficiency, enhancing client relationships, and reshaping service delivery models. They are wise to the professional service industry’s profit margins, and they are coming for them with their deep pockets. They understand that they can out-automate the small to mid-size firms offering the same services, and can even further commoditize the industry while doing so. With each iteration of improved AI capabilities, the human factor of the professional services industry will become less and less integral to marketing client solutions in this area.
Professionals have longtime been aware of the automation and technology threat to our industry. We knew the only way to survive and continue on was to be the advisor and interpreter for our clients. The human element. I don’t believe any of us were considering the “what if” of AI (at least in our generation), and for those of us that were, even on our most imaginative days, didn’t believe it would be this good.
Conclusion
The advent of AI in professional services is reminiscent of the introduction of the nail gun in carpentry. Just as seasoned carpenters, skilled in their traditional methods, initially resisted the nail gun due to its flaws like marring wood or overdriving nails, professionals in legal and accounting fields might exhibit similar hesitancy towards AI. Despite its imperfections, the nail gun brought undeniable efficiency and effectiveness, transforming the craft. Similarly, AI, for all its potential drawbacks, offers a paradigm shift in professional services. It compensates for any lack of finesse with unparalleled efficiency and effectiveness, signifying a new era where adaptation and integration of these advanced tools are not just beneficial but essential for staying competitive in a rapidly evolving landscape. To be frank—all professions are guilty of this behavior. There is the way it was and has been done, and then there is the new, shiny, scary horizon of where the profession is heading.
Navigating the intricacies of timber taxation in the United States is crucial for anyone involved in forestry, whether as a landowner, investor, or business entity. Unlike other assets, timber’s value grows over time in a literal sense, and this growth has significant tax implications. This article aims to demystify the key concepts of timber growth and basis, which are essential for understanding and accurately reporting your tax obligations related to timber activities. By grasping these concepts, you can make informed decisions that optimize your financial outcomes in forestry investments.
Defining Timber Basis
The ‘basis’ in timber is a foundational concept in forestry taxation. It represents the capital investment in timber, comprising the purchase cost of the timberland and other associated expenses, such as legal fees, surveying costs, and the cost of planting or seeding. Understanding your timber basis is vital for determining the taxable gain when selling or harvesting timber, affecting your overall tax liability.
Importance of Timber Growth Tracking
Monitoring the growth of your timber is essential for both management and tax purposes. It helps in estimating the volume of timber available for sale or harvest, guiding your operational decisions. For tax purposes it is important to track and maintain accrurate estimates of annual timber growth to aid in the proper calculation of a depletion deduction. Understanding how much your timber has grown, both physically and in value, is essential for accurate tax reporting.
Methods of Calculating Timber Basis – Depletion
Calculating the basis in timber can be done through various methods, each with its own set of considerations. The depletion method is the most commonly used in scenarios of periodic harvesting. This method involves determining the basis for the portion of timber that is cut or logged, based on the original investment in the timber relative to how much timber was logged in the current year. Since most investors do not complete timber cruises annually, having accurate estimates of timber growth is an integral part of being able to support an accurate depletion deduction. A depletion deduction is equal to the original investment and other capitalized expenses times the current year ratio of MBF Cut over Total Available MBF (not this is not the original MBF at time of purchase). Accurate growth tracking and estimating provides the “Total Available MBF”
Example 1: Logging a Percentage of Grown Timber
Consider an investor who buys 100 acres of land for $1 million, allocating $100,000 to the bare ground and $900,000 to the timber. Initially, there are 900,000 MBF (thousand board feet) of Douglas Fir. Over a 10-year period, the timber grows at an average rate of 3% per year. After 10 years, the investor decides to log 45% of the total timber.
Here’s how the depletion method is applied…
Timber Growth: The original 900,000 MBF of Douglas Fir grows to approximately 1,209,525 MBF over 10 years.
Volume Logged: 45% of this grown volume, about 544,286 MBF, is logged.
Basis Calculation: The basis for tax purposes is 45% of the original timber basis of $900,000, which equals $405,000.
Example 2: Logging a Specific Volume of Timber
Now, let’s consider the same scenario, but instead of logging a percentage of the timber, the investor logs a specific volume – 450,000 MBF (equal to 45% of the original available MBF) – after 10 years…
Timber Growth: As before, the timber grows to about 1,209,525 MBF.
Volume Logged: The investor logs 450,000 MBF, which is approximately 37.20% of the grown timber volume.
Basis Calculation: The basis for tax purposes is 37.20% of the original $900,000 timber basis, amounting to approximately $334,842.
Comparison and Key Insights
These examples highlight a vital aspect of the depletion method – the basis calculation is directly linked to the original investment and the proportion of timber logged relative to its growth. The depletion deduction varies between the examples by more then $70,000. The method does not necessarily consider the current market value or the final volume of timber. This approach ensures that tax calculations reflect the economic reality of the timber investment over time.
Conclusion and Disclaimer
The depletion method is a fundamental aspect of timber taxation in the U.S., crucial for accurate tax reporting and financial planning in forestry investments. However, it’s important to note that this article is for informational purposes only and does not constitute professional tax advice. Timber taxation can be complex, and the laws are subject to change. Therefore, individuals and businesses involved in forestry should consult with a certified public accountant (CPA) or a tax professional specializing in timber taxation for personalized advice and compliance with current tax laws.
