FP Training

Reasonable Compensation Training - 2025/01/08 09:57 PST - Transcript

Attendees

Becky Brown, Becky Brown's Presentation, Candace Panagiotides, Chelsea McFarlane, Fireflies.ai Notetaker Matt, Larry Spencer, Larry Spencer's Presentation, Matt Kerrigan, Matt Kerrigan's Presentation, Morgan Holmes, Morgan Holmes's Presentation, Shelby Thompson, Stefani Bruce, Tiffany Thomas

Transcript

Becky Brown: possible to have a transcript also,…

Shelby Thompson: Indeed, it is doing that.

Becky Brown: not just the recording. Great. Awesome.

Morgan Holmes: Get back to the beginning of the All right.  Everybody's favorite slide. Eventually, we'll change this. All right. So we're going to talk about is u reasonable comp generally then we'll talk about the RC reports.  I mean they're very easy to review next page so basically when we refer to regional comp we're specifically going to talk about S corporations because for C-corporations it gets sort of turned around a little bit but for S corporations what we're trying to do is determine the appropriate amount of compensation for shareholder-employees. and the definition of owner-employee would include that person's spouse as well. So if the spouse is in the business, we would need to do a reasonable comp report for the spouse too. but the purpose of what we're trying to do with reasonable compensation is balance what's the minimum amount of compensation that an employee could take or employee owner or some employees or owners want to take more compensation to increase employee benefits or retirement benefits stuff like that so again, the reasonable compensation is important one to determine the appropriate level of shareholder compensation. if it's too low, the IRS will come back to upon examination, the IRS will determine what the appropriate amount of compensation is. most of the court cases out there get you right to the Social Security Max for the year. and then everything else after that would be a draw. If you're underpaying yourself, you will end up getting assessed additional payroll taxes and penalties and interest on those payroll taxes. They have to catch the reasonable comp amount.

Becky Brown: And then Morgan,… yesterday you mentioned that if someone doesn't have enough to pay themselves, they can reduce their salary, but that means they can't take distributions for three years until they catch up.

Morgan Holmes: So in other words, if you don't have enough cash if your reasonable comp amount is 150,000, you don't have enough cash to pay yourself 150, you pay yourself 50,000, then in year two, you can't take distributions until you have paid your in compensation that 100 grand that you were short prior year. So, there is a look back to that. Oops. like I said, some business owners like to have higher compensation so they can max out 401k contributions,…the profit sharing contribution, the profit sharing component of compensation to an owner shareholder off of directionally is 25% of their compensation. So if their reasonable comp amount is low, then their ability to max out their profit sharing contributions goes down.

Becky Brown: And then also we want them to max out their social But okay,…

Morgan Holmes: It depends on what they want. It's what they want. there's a whole slide at the very back for questions.

Becky Brown: got it. Trying to Okay.

Morgan Holmes: A lot of the questions are going to be covered in the rest of the slides.  them. So, reasonable comp is determined. It's not just, hey, I think $50,000 is a reasonable amount of compensation. That is not going to get you protection from the IRS. So, we use a software package called Reports.  The way that RC reports works is it sends a questionnaire to the employee owner and it starts asking questions about what do they do in the business? How much time do they spend in the business? are they at Are they Are they above average at certain tasks?

00:05:00

Morgan Holmes: So, it asks all these questions and what it's really trying to get to is there's a back-end database that says, "Hey, if this guy is taking out the trash and doing marketing and doing bookkeeping and all that, it's keeping track of the amount of time that that person spends on those tasks and then it comes up with a hourly rate in which that person would have to go hire someone in that location,  So, for example, if Matt was going to hire someone to do marketing in Michigan, it might have a different rate per hour than here in California if you were to hire someone to do marketing. It then takes all of the time and those tasks and those hourly rates and builds up a reasonable compensation amount. And that's effectively what we use to get there.  So it spits out a report with all these tasks and the time and their proficiency in those and builds up a reasonable compensation amount. So like I said, underpaying shareholder compensation can result penalties and interest upon a tax examination. it could result in reductions in retirement contributions and then ultimately down the road if you're not paying yourself the social security max as Becky pointed out you could end up getting reductions in your social security benefits when you start pulling social security whenever that is. Oops, this one actually should say underpaying or overpayin but when you over overpay shareholders essentially what you're doing is paying too much in payroll tax. But again many people like to overpay themselves because they're trying to contribute as much as they can to their retirement. So they're willing to pay the payroll taxes or the additional Medicare tax to get that increased amount of retirement contribution. by overpaying yourself, it decreases your taxable income. And so it then reduces your qualified in business income deduction, which is that 20% deduction that came into play with the tax cut and jobs act. because of that reduction in taxable income, it could potentially reduce your passer entity tax credits. So in California pastor entities sharehold escorps and partnerships can elect to pay California tax on behalf of the shareholders or partners and those partners shareholders get credit on their individual tax return. So the lower that credit ends up being.  So shareholder compensation isn't just the wages that you pay to them. So shareholder compensation also includes for S corporations greater than 2% benefits. So medical, dental, vision, long-term care, AD and D and group long-term care. All of those are part of the employees compensation.  And I have a calculation to show you if we're going to compute the reasonable comp how much you should have in gusto as their wages  So again, we use RC reports to do the reasonable compensation analysis and primarily it's documentation. Again, if you get into an IRS examination and you haven't computed the reasonable compensation, they're going to do it for you. And like I said, they're not interested in you paying the least amount of compensation to the shareholders. They are going to try and make it the most as possible which is definitely going to lead you to paying more payroll tax and incurring penalties and interest. And in addition, us as CPAs are subject to penalties if we allow our clients to underpay themselves. This is kind of it. I mentioned in a earlier call, reviewing these things is really common sense, right? We know what our clients do.  So, the three key pieces does the employee work full-time, right? So, if the employee only works half-time, then the reasonable comp amount, it should be 50% of what he or she would be paid if he was working full-time. Make sure the geographic location is correct.

00:10:00

Morgan Holmes: they answer that when they do the reasonable comp report, but again, if you're working outside of California, your compensation likely is going to be lower than if you are working inside of California. So, it does make a difference where you're geographically located. And then the report will have all of the tasks that the employee says they do, right?  So, bookkeeping, sales and marketing, etc. and all of the tasks are in one column, the proficiencies are in the next I never like to see above average because it drives your comp amount, significantly higher be I had Becky and I had an instance of a client a year year and a half ago that the guy grew a business from zero to some ridiculous number in three years. And when he put his proficiency in as an executive of the business, he put below average driving his business down. And we were like that that doesn't even make sense. Is anything missing?  So, we know what our clients do. even though I prepare tax returns, I do a lot more than prepare tax returns, right? So, I'm on these marketing calls and this that and the other thing. So, my reasonable comp would have, all these different tasks in there. so as you're reviewing these things, are there tasks that aren't on there that probably should be on there? The proficiency most of the time they're just going to put average and then do the hours on the tasks seem appropriate. So, I might spend two hours doing marketing and 38 hours doing tax returns. There's a lot more stuff that I do in between, but do the hours on the specific tasks make sense? That's pretty much it there. it's just really common sense.  If your client, it should be easy to do a RC report review. This is just showing you here's a link to RC reports if you guys, want to get on there. This is just right off their web page.  So, if you want to see how to do something or how to get started or how to review it or whatever, you can go to their website or you can ask me. All right. So, this is pretty simple calculation,  So, here's the amount of reasonable compensation as an example that RC reports determined this employee should be paid $145,000, right? If the employee shareholder was going to get $145,000 she was already paying $25,000 in medical, dental, and vision, then we should be including in gusto payroll $120,000 a year that's the amount that employee should get in wages because as we all dealt with at the end of the year here, we know that $25,000 gets included in box one of the employees W2. So his or her box one is actually going to say 145 because that 25 is already being included in wages. So again this amount here is will be the 120 plus the 25 as taxable wages. Back to what we were just dealing with before the close of the year. This is where you'll see all of the greater than 2% shareholder benefits. They should be in box 14. So just separately disclose what their medical benefits are. And this is how you get caught. It's right on the tax return. It's so easy for the IRS to figure this  Compensation of officers is specific specifically broken out on the front page of the tax return. Distributions. So this is where if your compensation amount is $10,000 and you have a million dollar of distributions, how could they not figure this mean we electronically file these tax returns.

00:15:00

Morgan Holmes: Everything's electronic that it's easy to get caught on Oops. And then this is the other form that is going to be in pretty much all of our clients tax returns. This form is required if you have a half a million dollars of gross receipts or more. So, this is going to detail out your names of the officers, social security numbers, the percentage of the time they spend in the business, how much they own. it's so easy to get caught for paying yourself unreasonable compensation. this piece is important here. this column, I don't know if you can see it, column D, but I think it's D. C. column C.  So this is where if you have an employee spouse that's only working 25% in the business and the compensation amount is reflects that we need to make sure that our tax returns are showing this 25% because if you don't put 25% in here most people will put 100%. And then they'll show the $25,000 of wages and then when this client gets examined you will get nailed. the IRS will say, "No, this should have been $100,000, not 25, and assess penalties and interest on the underpaid wages." Becky,…

Becky Brown: Yes, I have lots of questions,…

Morgan Holmes: any questions?

Becky Brown: but I'll let other people ask first.

Chelsea McFarlane: I think you should ask your questions, They're probably the same even better than what I would ask.

Larry Spencer: I do have one.  Morgan, you mentioned that a CPA can be liable if that compensation isn't correct. How does that translate into us doing this for as FPS? does the fact that we're using RC reports does that liability shift to them or… what does the liability like No, it specifically rests on the client.

Morgan Holmes: The client will be subject to penalties and that CPA signing the tax return. Yeah.

Becky Brown: our clients who are not tax clients and maybe they'll say, " I do reasonable comp thing with my CPA. That's how I get my salary." there may be someone whose CPA is having them do reasonable "Okay, great." But most CPAs don't do Most like it's not a common thing. and I don't even think it's important we can focus on the penalties to them, especially if we don't do their taxes. we don't really need to open the can of worms of your CPA is not good. I don't want to have that responsibility. So I think it's more focused on the liability that they're exposed to than the liability that their CPA is exposed to.

Morgan Holmes: Yeah. No.

Becky Brown: Morgan is not going to do it escort tax return if they don't do a reasonable comp. I don't know, Morgan, if someone is paying themselves, if you told me that you had a client, Bullet Group, who they took all of the profit and put it all on W2s, right? Because they were like, eat what you kill, right? Because I guess know CORP you have to distribute Petta based on ownership. So, if an owner is going to make more than the other, it has to be done through compensation. it has to be done through W2. It can't be done through distributions. So, if that's the case, let's say a company is making 500,000 profit and each owner has 250k on their W2. Would they have to do a reasonable comp anyway? Okay. No,…

Morgan Holmes: that pay themselves ridiculous amount of money in the bullet group situation, we just leave that alone, it's how they're compensating themselves. I have another.

Becky Brown: no, of course. Of course. But I'm saying any client that we see has a $300,000 W2 comp, we probably don't have to like is there a number where we're like, " they already pay themselves over maybe it's a percentage of revenue or I don't know, but that we could say they're paying themselves enough and they don't need to do that.

Morgan Holmes: So, where I was going is that I have a client that pays himself $400,000 and he's a solo owner of an S corporation. And what we really need to ask is why are you paying yourself $400,000? we would do a reasonable comp report to figure out what he really should be paying himself and maybe It almost always is significantly less, So, that's really just understanding why they're doing it. once you get over a certain amount and I mentioned before that some clients like to pay themselves higher amounts of compensation because their profit sharing contributions are dependent upon their W2 compound.

00:20:00

Morgan Holmes: So once you get past a certain point though it's like you're not getting any benefit by paying yourself $400,000. You're just paying for Medicare tax.

Becky Brown: So I think…

Morgan Holmes: So you might as well dial it down. so depending upon, what it is they're trying to accomplish, if they're paying themselves too much, we might do an RC report to figure out what they really could pay themselves and dial it back.

Becky Brown: then in preparation for any call you would want to look at the escorp owners and see what they're paying themselves and have a conversation about how did you get to this number right how did you get to your salary if it's something like a h 100,000 they probably just guessed they just said pay me 100,000 right or if it's even 200,000 they just said, "Pay me 200,000." But the question of I think starting the conversation is how did you get to this number? Did anyone help you guide you to get this number? And then based on that answer, we say the IRS, it's really important to the IRS that people that escorp owners are paying themselves the reasonable amount.  So it go feeds into the conversation saying this is what you're paying yourself and why. It's a good starting point. And again,…

Morgan Holmes: Yep. And… then maybe understanding what they're trying to accomplish with that, right? So,

Becky Brown: you don't need to be the expert. You don't need to have the answer on the call. If they have a question that you can't answer, you'll go back and find out and get back to them. It's no problem. I don't want you to feel paralyzed or that you have to be the expert. You're just conveying something to the clients that will help them. You're giving them an advice Larry is going to create a little short sentence couple sentence email if they say they don't want to do it just to send them. yeah, no other questions.

Chelsea McFarlane: I missed Monday's call, unfortunately. So, I feel like I'm a little bit behind. So, when I look at the task, there's one that says, "So, we're analyzing the reasonable compensation report to make recommended payroll adjustments." But then the next one says, "Analyze the report provided by AL." So, is the FP doing the compensation report or is the AL Okay.

Becky Brown: out that template and then you take the template and analyze. I don't know. I mean, that's what we got to figure out. The one you just showed us.

Chelsea McFarlane: on. Okay.

Becky Brown: Let's go through the process here. So, you have a conversation with your client.

Chelsea McFarlane: Yes, please. Okay.

Becky Brown: you explain what is reasonable comp comp and what we're trying to do is help them make sure they're paying themselves the right amount in 2025. If they ask why haven't you talked to me about this before,…

Chelsea McFarlane: Mhm.

Becky Brown: you can be very clear in Janu January of 24 we added in a CPA to our practice and so we're really trying to focus on doing the books with taxes in mind, So that's something we've started doing and this is an example of that.

Becky Brown: if they ask why haven't you said this before, they may not ask that. and then I noticed that your compensation or your and Stephanie's conversation, whatever is $150,000 each. I'm really curious how you got to that number, if anyone helped you get to that guidance. if they're at 150, they're also below the Social Security max, so they're not maxing out their Social Security, and that can affect their benefit when they go to take Social Security. but these are just things that we're just showing them that we're caring about and we want to help them get to the right compensation number. And that is taking the RC report questionnaire and then we will analyze it and get back to them with a recommended salary.

Chelsea McFarlane: My kids being really loud. Are you wanting us to call or make a phone call to any company is there an email that Sorry.

Becky Brown: I would start with making yourself a list of your escort clients and then on your next call with them on your next MFR and if you don't have an MFR scheduled it's someone I know that Chris Sawyer rarely has calls but someone who doesn't really have a call with you very often then it can be with an …

00:25:00

Morgan Holmes: It's Yep.

Becky Brown: then we can send an email and say hey I'd like to schedule a call to discuss reasonable compensation with And it's anyone taxed as an escort.

Chelsea McFarlane: And then hang on.

Becky Brown: So even if they're an LLC tax as an escort Yeah.

Chelsea McFarlane: So, there's that questionnaire and then I thought he said there's software that is used or is it just huh.

Becky Brown: So, if your client says they want to do it, that's the next Larry, we haven't figured out how that's going to happen because right now you're the only one who can send them besides Morgan. So then, I mean, can we make a keeper template that someone can create and…assign to you when their client says yes? yeah.

Larry Spencer: Yeah, that'd be good Or yeah, let me think on The best way to trigger. So the other thing too is if they do say yes, I'm interested in doing that. we need to discuss cost with them, right?

Becky Brown: It's $500 a year. this survey has to be done every year to make sure that you're protected from the IRS. What I would suggest is we'll just add $60 a month to your bill or we can charge you the full 500 or you just say we'll just add $60 a month to your bill and then that's it. I wouldn't make it a huge deal about the cost. it's more about the benefit and we believe it's a big benefit for them. So I think it's more like it's $60 a month, but it's I mean sorry $50 a month.

Morgan Holmes: That's 720,…Yeah,…

Becky Brown: My brain going backwards. $50 a month. That's 600. Is it 600? I thought it was 50 a month.

Morgan Holmes: I mean whatever. I mean just keep in mind that keep in mind too as I pointed out before M3 networks is going to have to have two of these,…

Becky Brown: Yeah, that's …

Morgan Holmes: So Reebus is two M3 network.

Becky Brown: per report, right? It's $50 per month per report,…

Larry Spencer: per share.

Becky Brown: Per shareholder. Yeah.

Morgan Holmes: And we have a handful of CC Corp clients,…

Becky Brown: Mhm.

Morgan Holmes: Yeah. So, I guess I'll explain to you how the reasonable compensation works. It sort of flipped on its head.  So, CC Corp taxpayers trying to take as much as they can out because compensation reduces taxable income which reduces corporate tax. The IRS's position is if you pay yourself an unreasonable amount of compensation, i.e.  too much. They will lower your compensation amount and treat the difference between what you did pay yourself and what they determine to be reasonable compensation and they treat that as a dividend to the shareholder to the officer and therefore taxable income at the corporation goes The individual ends up having dividend income.  So it's the inverse of the escort issue. C corps to pay themselves too much. I would focus on the S corps. I don't think our C corp clients are paying themselves ridiculous amounts of money.

Becky Brown: Anyone else?

Chelsea McFarlane: I mean, I'll probably have more questions as we get into it more, but yeah, step one, figure out your clients that have an escorp. what did I write down? and then we have a conversation with them about how did you get that number? Am I on the right track? and then we just ask…

00:30:00

Chelsea McFarlane: if they want it to be analyzed. If they say yes, we kind of go from there.  hopefully get a keeper task going. Okay.

Morgan Holmes: Yeah. I mean,…really what you're looking for is really low compensation coupled with distributions, right? So, if someone's paying themselves $20,000 in W2 wages and taking out hundreds of thousands of dollars of distributions from the business, likely or people that are paying themselves a lot of money via W2 probably are overpaying themselves. And remember, when we're talking about, W2 compensation or reasonable compensation, it's the wage amount plus the benefits that end up on the W2.  So, someone's paying themselves $150,000 in wages and $40,000 of medical benefits. that's 190 grand is what they're paying tax on. So, they're probably overpaying themselves.  Okay. Good.

Candace Panagiotides: Do we happen to have a main list or is it an air table or something where we can quickly look at our clients and see what their filing status is by chance?

Chelsea McFarlane: That's great question.

Becky Brown: We're working on that,…right, Larry? : In keeper there's a property in the client info tab for entity type and there's actually a lookup in key when you're doing a client lookups. Let me see if I can share my screen show you that. So, if you go to the clients,…

Larry Spencer: there's a lookup right here called entity type. And so, right there, it'll tell you. Then you can also filter by FP. So, you can filter by yourself.

Morgan Holmes: Yeah, I went and…did a little bit of cleanup on this for the ones that I knew,… but you can see on your screen right there, Larry, there's three of them that we don't have.

Larry Spencer: Yeah. … if so…

Morgan Holmes: We have no idea. Clinton Turner.

Larry Spencer: if you have an FP where you're questioning or if we don't have that data, if you could find out for us, that would be wonderful.

Becky Brown: Which are the ones that are empty? Okay. kart rentals. Go Car and Turner are both advisory clients.

Matt Kerrigan: Yeah. Yeah. Advisory only.

Becky Brown: So, not to say that we shouldn't do it, but Yep,…

Morgan Holmes: Yep. Is that sole proprietorship right there?

Morgan Holmes: Is that law firm, Becky?

Becky Brown: that's right.

Larry Spencer: Next. You want me to change that?

Becky Brown: Yep. He's a schedule C.

Becky Brown: Next up is tax as an escorp, I'm pretty sure, because she reigns on payroll. Matt. Next step is an escort,…

Matt Kerrigan: What was the question on that one?

Becky Brown: isn't it?

Matt Kerrigan: Yeah, this is one we identified this before. I think it's an LLC,…

Matt Kerrigan: but for what I think that column supposed to represent, it should say escort.

Becky Brown: Yeah. Next step is an escort.

Larry Spencer: So yeah,…

Larry Spencer: it's just right here in the info section. Keepers being slow. So we want that to be escort,…

Matt Kerrigan: Yeah.

Larry Spencer: right? filter.

Morgan Holmes: on the Larry, can you filter that by single member LLC or…

Larry Spencer: I'm sorry.

Morgan Holmes: SM LLC?

Larry Spencer: No. I guess blue cotton's the only one.

Morgan Holmes: …

00:35:00

Larry Spencer: by the way.

Morgan Holmes: so with a single member LLC where it's just one owner, the tax determination is determined by the owner of the business. So, if you have a single member LLC that's owned by a CC Corp, then that's a CC Corp. You have a single member LLC that's owned by an S corp, then the tax status should be Sorp.

Morgan Holmes: Make sure the tax status is correct.

Becky Brown: happy to help find out. I know Trellis is a sole proprietor. Is that? Sorry, it is. Yeah.

Larry Spencer: Okay, got that.

Morgan Holmes: So other than the mechanics of how we're, going to approach clients, does anybody have any questions specifically on reasonable comp and…

Morgan Holmes: what it is?

Larry Spencer: Just to be clear on something,…

Larry Spencer: I think you might have already answered this, but if they're paying themselves the Social Security maximum, is the IRS ever going to say, "No, you should be paying more than that." So,…

Morgan Holmes: Not likely. I think it's a good idea.

Larry Spencer: that could potentially be their max.  And the only reason they would ever do more than that is to maximize a profit sharing or other benefit. Okay.

Morgan Holmes: It documents how you got to Yeah,…

Becky Brown: Yeah. Yeah.

Becky Brown: Yeah. No, absolutely. I just wanted to clarify

Morgan Holmes: there haven't been very many of these RC reports when we do them.

Larry Spencer: You're close.

Morgan Holmes: They're beyond the social security cap. They're usually less. And usually what I do when I get a client, let's say that the reasonable comp amount comes out to $140,000 or $150,000, I'll always have a discussion with the client to say, here's the amount that it is. here's the social security cap and just FYI if you don't pay yourself the social security cap then down the road your social security benefits are going to be lower and so I always leave it up to the client when I get close to the social security cap so

Becky Brown: But be prepared even when leaving it up to a client. The client may say, "What should I do?

Morgan Holmes: We have a little bit of time. Does it I'm gonna open one up.

Larry Spencer: That seems all right.  Yeah.

Morgan Holmes: This is what it looked like. This is Michael Moore and I can tell you already it seems not It seems really high. So this is what it like. let me show you the report itself. That's what the software looks like. Here's the report. So, what this is telling me right now is 87% of what Michael does is manages the business.

Becky Brown: Mhm.

Morgan Holmes: And that's why his comp amount so high. Can everybody see that, by the way? All right.  So that's the first page. Then you start getting into the tasks. So Michael says he spends 41.6 hours a year collecting AR and 104 hours doing budgets, 62.4 hours doing employee training, 62 hours doing and 977.6

00:40:00

Morgan Holmes: six hours as a CEO. So in this case, we might go back to Michael and say, "What else do you do?" Because he's basically saying, "I just do collections and then I run the business." He probably does more. You can see that, his compensation amount for running the business is 183.53 hours.

Larry Spencer: and that hourly wage came from RC reports from its database somehow or algorithm

Morgan Holmes: And part of it is that he claims he's an above average CEO. we know that's not the case because his books are nice, right? Yeah. Yeah.

Morgan Holmes: and it came from so what they're saying is an above average CEO in Tarant County, Texas is going to get paid $183 an hour. So by adjusting this from above average to average, his reasonable comp amount will drop and then asking him don't you do anything else in your business other than finance and run the business will probably drop his reasonable compound.  So here's his proficiency in each of the tasks and here's the hours that he spends doing those and the database came out with hourly wages of, these amounts here in this column and then it just builds up his compensation amount. he says he does.

Morgan Holmes: So his job in the business is CEO,…

Morgan Holmes: sales manager, and advertising and promotions. And again, he's saying he's above average in sales.

Becky Brown: He likes himself a lot,…

Becky Brown: doesn't he?

Morgan Holmes: I always use this baseball analogy when I go through these things, right?  It's like, I know how to play baseball and when I played I was pretty good at it, but I was never making major league baseball, So, I was an average baseball player and most of the people that we grew up with playing baseball were average baseball players even if they were the superstar of the team because they would never make it to the ML, right?

Becky Brown: He was a baseball star. He moved to the US because he was going to go to the NBA and he was humbled very quickly when he got to the US. He moved to LA and went to high school with some real ball players what they were doing and he was like, "Okay, never mind." Because when you're even…

Morgan Holmes: Yeah, exactly.

Morgan Holmes: So, I always tell my clients, just put out

Becky Brown: though no matter…

Becky Brown: how good you are, there's probably a lot of people much better than you. It seems so subjective.

Morgan Holmes: Yeah. Yeah.

Morgan Holmes: I mean, if he was an above average CEO, he wouldn't be running an MSP.

Morgan Holmes: He'd be, running a bank or some publicly traded company, right? Yeah.

Larry Spencer: So, this was a good example of one…

Larry Spencer: if we were handling this client, I know you're talking to him about it, but would we go back to him and say, "Yeah, based on your recommended compensation, we would recommend the Social Security Max." Or would you go back and forth with him and try and get him to change this around and make him change that number and make it come back down a little bit.

Larry Spencer: So we can actually change the report on their behalf is what you're saying.  I think this is

Morgan Holmes: Yep. Keep in mind that this thing doesn't save.

Morgan Holmes: So there's no version control. So now that I've changed it, it's changed. So just making those two, from above average to average drops them down to 183.

Morgan Holmes: then what else do you do in your business? probably as you add more tasks, it's going to continue to drive this down because the big driver in his reasonable comp is that he claims that he spends, half of his time being a CEO of this business, So, if you start layering in other stuff maybe he spends an hour of hour a week cleaning the office, right? that's going to drive this down.

00:45:00

Larry Spencer: So I'm thinking the analysis and recommending phase, this probably where I think as FPS we might struggle initially and need to really lean on your guidance. So I think that'd be good to have that kind of

Morgan Holmes: are you sure you don't do anything else? Or are you sure you're above average? these kind of common sense questions will change change.

Larry Spencer: for now.

Becky Brown: Yeah, I mean me and…

Becky Brown: or Morgan, if I'm not available and you're gonna have your call, one of us can join, but I'm happy to be the first line of fire and pull in Morgan afterwards.

Morgan Holmes: And…

Morgan Holmes: so this would be the total amount going back to one of those slides or that template that you referred to. So if his medical benefits were 23,761 then 160,000 would be your wage amount in gusto. which I guess causes us to go back and review medical, dental, vision, all these things…

Larry Spencer: makes sense.

Becky Brown: There's Candace.

Morgan Holmes: because as Chelsea and I were working on I can't even remember what client that was but as we were working on one of them I think it was M3 networks, wasn't it, Candace. I think it was M3.

Candace Panagiotides: Yep. This is the one cuz his insurance and everything was 36,000 for the year or

Morgan Holmes: Yeah. but M3 Networks has every kind of insurance under the sun. They have AD and D group life insurance. They have all kinds of stuff, right?

Morgan Holmes: And so the tax treatment of those is different depending upon what the benefit is which box it ends up in

Larry Spencer: So, can we just talk through process steps real quick? Make sure I have an understanding. first step would be FPS review their client list for escorps, see if they can look at the shareholders wages and determine if they look out of whack. Right. second step would be to contact the client. Have the discussion with them either on a separate call or just maybe the monthly financial review call.

Becky Brown: What the hell?

Larry Spencer: Have a discussion about doing an RC report for them and what that would involve and why we would do it. If they want to do it, the next step would be to notify me and I could launch the report in RC reports for the shareholders to do that. And also, who would be the person who would initiate billing? would I just let Shelby know to get triggered for that? If they agree to do it, then I would just let Shelby know.

Becky Brown: to get the payment.

Morgan Holmes: to  I believe.

Larry Spencer: Yeah, somebody Yeah,…

Becky Brown: Tell me. Sorry. Yeah,…

Larry Spencer: somebody has to build a client. So, okay.

Becky Brown: I would do that. That would be me. Right.

Larry Spencer: The next step is the client would fill that out and complete the report and then I would see the report show up in RC reports, And then I would give that to the FP to begin working on that analysis part.  From that point on, then it's a matter of discuss with the client, make adjustments as needed, and close out the task once we're done.

Morgan Holmes: Yeah. …

Morgan Holmes: so Larry, let's talk about making adjustments, me, and I don't know, there might be a third license to this. Who would make those adjustments?

Becky Brown: That's…

Larry Spencer: Yeah, I like that idea.

Becky Brown: why I wonder if we should make an FP general using Hello at Strider or QBO at Strider or one of those so everybody can go in and do their own clients. So either if we don't have a third license, maybe we can just change Larry's to that.

00:50:00

Morgan Holmes: Yeah, that's fine.

Becky Brown: I think Larry should still be the initiator unless Larry pass that on to John or something, but I don't think and one person needs to be in charge of when they come to forward it on because not everyone's going to get the email and not everyone should get all of the emails, but So, it'll just we'll have it say Stride Services. It won't say a name.

Morgan Holmes: Okay, it'll say stride services of stride though.

Becky Brown: That's fine.

Becky Brown: we're not talking about something it's confidential but it doesn't have any social security numbers or

Morgan Holmes: 

Morgan Holmes: No, no, no. I'm just saying that depending upon who is sending it out, the report says, "Thank you for entrusting that person of stride, you can't change this language." So if Larry's saying it out, it's going to say Larry Spencer. If we change it to hello at stride, it's going to say, entrusting hello at stride of stride. Just

Larry Spencer: Becky Brown and then what email address do we use for that?

Becky Brown: She will tell you later.

Larry Spencer: Okay. What the f***?

Morgan Holmes: …

Morgan Holmes: any other questions? All Yeah, it's pretty simple. it's like I said, it really just is common sense. If we know what our clients are doing in the business, then you can look at this pretty quick and go, something doesn't make sense.

Morgan Holmes: All right.

Larry Spencer: All right.

Matt Kerrigan: It sounds good.

Becky Brown: Matt, can you stay on for a minute?

Matt Kerrigan: Yeah. …

Larry Spencer: Thanks everybody.

Stefani Bruce: Thank

Tiffany Thomas: Best.

Becky Brown: I don't know. You probably didn't see what's her name's email just now. Elizabeth's she just sent an email asking about using live flow for so they have the most annoying process for beline that I can't figure a workaround to is the stupid so that all of their employees need to see the project P&L so we export it and…

Matt Kerrigan: no. Let me see.

Matt Kerrigan: Yeah. Mhm.

Becky Brown: then sometimes they want to move the expenses to a different category so they tag

Becky Brown: it in Google Sheets and then I have to go move it which is I mean I don't have to Christine does it but it's still really annoying.

Becky Brown: So I just wonder if life flow if the employees could make a change and have it actually stick and change in QuickBooks. it doesn't do comment on it.

Matt Kerrigan: I don't think the tool does that.

Matt Kerrigan: No. No. But say that again.

Becky Brown: They could comment on it.

Matt Kerrigan: 

Matt Kerrigan: They could So they could set up a comment and assign it to Christine. They could do that.

Becky Brown: Yeah, that might be better than the stupid Google Sheets thing.

00:55:00

Matt Kerrigan: Yeah. I remember at one point talking to Elizabeth about this and I'm trying to think if their preference was to have the spreadsheet u segmented by person so that a person could see x number of projects they wouldn't necessarily see every project. Do you know how it currently works?  Okay. Yeah. let me work on this. I need to zip off here in a couple minutes, but I'll send you because I think I've already created the report.

Matt Kerrigan: I'll send you what I think the report is and then if you can just verify if that is indeed the report and then I'll probably just maybe have two tabs. One is cash for 24 and one 25 acrual I guess. And then do they need to see it by month or they just need to see the total project financials?  I'm guessing that's the total correct. Yeah. Mhm.

Becky Brown: this is the problem. They have an $8 expense in travel and they want to move it to meals or they have $56. it doesn't change the bottom line.

Becky Brown: To it makes zero sense. I don't understand it. I don't get it. What does it matter? no it's not that.

Matt Kerrigan: Yeah. Is the issue they're not coding their expense reports correctly?

Matt Kerrigan: Is that the start of the issue?

Becky Brown: I mean that's part of it and we are nipping that in the bud because I've started rejecting the ones that I catch and…

Matt Kerrigan: Mhm. Yeah. Yeah. Mhm.

Becky Brown: like I've noticed because it used to be that accounting was the first person to look at the expense reports and I flipped it. So now it gets looked at by the manager of the project before I see it.

Becky Brown: I don't see it until they've approved it. The problem is sometimes they didn't catch something. it'll be a 50line expense report and one of them is coded wrong and you can see if you look at the expense report there's a lot of this should be this and…

Matt Kerrigan: Yeah. Mhm. Yeah.

Becky Brown: changes to this. there's a lot of back and forth between them and the contractor before it comes to me but they missed one, And so they are going through it and it's becoming less I can already tell than it was at the beginning. It was insane. And I was like, "This is crazy." And I realized it was because there were so many unatategorized expenses that were just submitting expenses to get paid back and weren't caring about what they were because there was all contractors. So now there's like they have and also they had ability to code to every expense.

Becky Brown: So they could go to charitable donations or they only have the option of four reimburse expenses non- air travel meals or one other thing and…

Becky Brown: maybe they need to keep track of non- versus air travel for the client. But maybe we should dig more into why does it matter if a number if $8 or $50 is in one account and needs to move to another like I understand…

Matt Kerrigan: Yeah.

Becky Brown: if one of their travel directors is in meals they want to move that because it's not right and meals is different than travel but travel and non- air travel and non-air travel to me being separated as a cost of goods sold number makes no sense.

Becky Brown: Why not just travel?

Matt Kerrigan: Let me see what I in the recommended chart of accounts that might be one area too …

Matt Kerrigan: if it's currently separated and then we recommend putting it together.  So we just remove the option of having those two accounts. Let me just

Becky Brown: I think it be to have the event manager …

Becky Brown: what they need to see for what is important. I don't think now for example if meals is in travel that's a problem for taxes right it needs to be in meals. So, I get that, but I don't understand for the purpose of their books and getting their P&L right, don't they just want to know how much they made?

01:00:00

Becky Brown: What is the reason to have so much detail and have to be perfect nails and…

Matt Kerrigan: calling it tra travel, meals, getting rid of non-air travel. I'll just call it travel.

Becky Brown: what are the other reimbured No,…

Matt Kerrigan: Miscellaneous event costs. I can share my screen.

Becky Brown: no. That's fine. I'm going into beline. It's easier. I can see it better.

Matt Kerrigan: I'm also making a recommendation, right?

Becky Brown: Where is that keeper ask? Hold on. I know you asked me to look at it when I was doing my task the other day.

Becky Brown: I didn't see it.

Matt Kerrigan: I find sometimes it's just hard to find keeper tasks for whatever reason.

Becky Brown: My little notifications. Okay.

Becky Brown: attached is what I recommended the be…

Becky Brown: but that's the thing there's nothing attached I think that's the issue okay…

Matt Kerrigan: So sometimes here you share your screen…

Matt Kerrigan: because there's a attachment you can either put the file in the comment or there's a place for attachments. So then go to the arrow with the tab.

Becky Brown: where I see the recommended COA.

Matt Kerrigan: That'll take you to the tab. And then you see that so the recommended COA see how there's that piece of paper with a one that's where attachments are supposed to go.

Becky Brown: What am I miss? there's this.

Matt Kerrigan: So that's where the attachment is. I need to hop off,…

Becky Brown: Okay.

Matt Kerrigan: but if you can review that, I would recommend we remove that non-travel and then at least this part of the conversation goes and then going forward, I would say as you're seeing some of these changes or some of these requests or as we see them, we just document them and then maybe just come up with a rule that says, hey, if it's under $100 and it's not moving it from meals or it's not doing this,…

Matt Kerrigan: either we say we recommend or we're not making these adjustments. I agree with you. It doesn't make sense. And it.

Becky Brown: Unless there's a reason,…

Becky Brown: I think we need to find out why.

Matt Kerrigan: Yeah. Yeah.

Becky Brown: When is your next call with them?

Matt Kerrigan: Probably next Tuesday.

Becky Brown: right.

Matt Kerrigan: right. Cool.

Becky Brown: Talk to you later. What a feeling. Perfect.

01:05:00

Becky Brown: It's funny.

01:10:00

Becky Brown: Let's do this show up first. I need to get this done. This is huge.

Becky Brown: Thank you for calling the lending solutions team. The representative you're about to speak with is a shared employee of Charles Schwab and Company Incorporated, Charles Schwab Bank, and Charles Schwab Premier Bank. If you would like to speak with a regional bank manager about opening a new pledged asset line, please call 8887253630.  Please enter your account number now. This call may be monitored or recorded for quality assurance and training purposes. Please listen carefully as our menu options have changed.

Becky Brown: For service related questions on an existing pledged asset line or if you have a pledged asset line application in process, press one. For questions on an existing mortgage loan or if you have a mortgage application in process, press three.  If you were calling about a payment, a watch,

Meeting ended after 01:13:06 👋

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