Financial Counseling Profile Lee Was Term Paper

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So, many expenses that would have given him a credit were not presented and this meant Lee had to pay large amounts as tax. The IRS clearly states that it is the responsibility of the business owner to deduct expenses and show receipts for the same. (, 2010). So, we recalculated his tax assessment for the year and included all deductible expenses that had proof of receipt. This brought down his tax by about $23,000.

The next step was to determine whether Lee's business was eligible for the health care tax credit approved by the Obama administration. Since Lee had more than 25 full-time employees with an annual average wage of less than $50,000, he qualified for the credit. It is 35% of the premium costs. (, 2010). This further reduced his taxes.

Another move is to give him a salary every month as the CEO of the company. Earlier, this money was retained in the company. This is not a good move because corporate taxes are as high as 15% to 35% whereas personal incomes have lower taxes. So, it is a better idea for Lee to get a salary and pay personal taxes on this income.

Also, section 179 of the IRS code clearly states that there is a tax break of up to $24,000 in equipment purchase and I encouraged Lee to take up this opportunity (Fraser, 2002). This is way better than writing these purchases off as capital expenditure and this brought Lee's taxes further down by about $6,000.

Lee used his car for business purposes also and he can claim these expenses as deductions from his taxable income. Lee had some receipts for gas and other road expenses and this was deducted from his taxable income. I also managed to take off some depreciation for the vehicle since he used it for his business. My charges can also be deducted from his income and he also consulted a lawyer earlier this year to check if he had to do anything to take up outsourcing as another arm of the business. The lawyer's fees was also deducted from his taxable income. He had dinner with some of his customers to know more about their outsourcing plans and how he can go about winning the contract. All expenses related to business entertaining can also be deducted and this further brought down his taxable income. Furthermore, the interest he was paying to the bank can also be deducted from his taxable income and this turned out to be a huge saving for Lee.

In all, these moves brought Lee's taxes to less than $40,000 and he had some additional cash for capital. This was a big financial turnaround for Lee and his company had more money because instead of paying $100,000 in taxes, he had to pay only about $36,568 and he could use the remaining for his immediate operating expenses. Besides, these financial moves would help Lee to pay less taxes and have more residual income in the future years.


Annuity is more complex than what many people think. There are two kinds of annuities, namely fixed and variable. Lee invested in the variable annuities and has to face all the problems that comes with it. The primary problem is that it is too complex and under-performing when compared to other kinds of investments. According to Paul (2010, p.59), "annuities were first introduced they were really built as a way to save money tax-deferred. But faced with consumers' general lack of interest in annuitization, the industry responded by creating income riders, such as living and death benefits, that allowed people to maintain control over principal they would normally lose with an annuity. But along with the riders came questions about how much value one was really getting when the costs were so high."

Lee had invested $200,000 in a variable annuity without completely understanding the income it will generate. This is primarily due to the complexity of the instrument and has nothing to do with Lee's financial prudence. He estimated that it would generate about $50,000 a year in retirement income and planned towards it. Unfortunately, after taxes and other charges, he would make far less. He considered whether he can shift to fixed annuity instead, but this is not a good move because inflation will reduce the residual income. "The average annual inflation rate over the past 80 years has been about 3%. So if someone were to put $100,000 into an immediate annuity at age 65, the income from that product would be cut by 45% by age 85. The income stream from that $100,000 annuity could eventually be under $6,000 a year." Paul (2010, p. 60).

A better option is to go in for a well-diversified portfolio that can give an average return of 6% to 8% per year. This can include a mix of stocks, bonds, fixed interest income from certificates of deposit with different banks and treasuries. This can generate a more stable retirement income for Lee and he should sell off the variable annuities as quickly as possible.


In short, Lee is an industrious and talented entrepreneur who was faced with three different problems related to finance. The first was financing for his small business, the second was high amounts of corporate taxation and the third was regarding his investment in annuities. I provided a solution for all the three problems and it is hoped that he has a better financial future due to this counseling.


McArdle, Megan. (October 2010). The Bright Side. Atlantic Monthly. Vol 306(3). p46-52.

Bowman, Margo. (Oct 2008). Your Small Business Budget. Massage Magazine. Issue 149. p 60 -63.

Small Business Administration. (2010). Retrieved from:

Internal Revenue Service. (2010). Retrieved from:

Fraser, Jill. (March 2002). Tax Planning for Tough Times.…[continue]

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