In January 2006, when the 29-year old Blake MyCoskie vacationed in Argentina, he discovered the “alpargatas,” a canvas shoe worn by Argentine farmers. He also noticed the extreme poverty and lack of shoes (particularly for children). Inspired, he reminisced on this inspiration in a 2011 article for The Business Insider saying “….the intense pockets of poverty just outside the bustling capital. It dramatically heightened my awareness. Yes, I knew somewhere in the back of my mind that poor children around the world often went barefoot, but now, for the first time, I saw the real effects of being shoeless: the blisters, the sores, the infections.” Blake hit upon a business plan for a new company, Tom’s Shoes, which would bring the alpargatas to the world market with the promise that for every pair of shoes sold, a pair would be given to disadvantaged children. The first shoes were sold in May, 2006. On August 20, 2014, Bain Capital acquired half the company in a transaction that valued the company at over $600 Million.
After hearing this story I purchased a pair of Tom’s alpargatas, and I have to say they were just about the most uncomfortable shoes I have ever worn. The flat rubber sole provided no arch support and the canvas body squeezed my toes together like a vice. Yet Blake is a multi-millionaire. It couldn’t be the product that made the company successful – it had to be the inspiration, the story. You know the old saying, “We don’t sell the steak, we sell the sizzle.”
What Blake has done for his customers is to awaken the hero within. Whatever your product or service, your marketing process goes into hyper-drive when it has a hero story behind it. You know the hero feeling – that tingling inside you that you only feel when you know you are doing exactly the right thing – the thing you were born to do and do better than anyone else – and you are rising to a challenge on behalf of others instead of yourself. Imagine how Tom Brady or Steph Curry feel when they enter the arena to compete for their team, for their city, for their sport. Think Steve Jobs or Bill Gates announcing a new revolutionary product that will benefit all mankind. A business that can inspire that feeling (for the owners and employees, as well as the customers) has unlimited potential. Do you want this type of inspiration supercharging your life and your business? Invoking this feeling is done with what I call a Metastory.
What are the qualities of a good metastory for you?
- Grand Mythological Back Story. Stories from mythology never really happened. But they are true, nevertheless, and often more true than the truth. They are true on the cosmological level of pure truth. There is an ordinary person, there is a conflict, there is a tragic flaw that must be overcome, first there’s denial, then surrender, then suffering, the suffering gets worse, and finally the hero takes up the call…..and you know the rest. Rescue the girl, kill the bad guy, save the world.
- Ties into your personal History. Make an inventory of your past. Look at your parents, your siblings, your childhood experiences, and find the natural series of plot points that tossed you around but eventually lead you to what you are doing now.
- Complements your professional activity. The story must have themes from outside your profession but that draw easy comparisons and metaphors. For example, the dentist who builds miniature sculptures or the attorney who volunteers helping veterans access their benefits.
- Your story must be something you can “do” and you can document with actions, pictures, videos, and it must invite participation.
- It must be something you already like to do, so you will persist and have passion.
- It’s best if it’s something you already spend money on it so that these expenses become tax-deductible. It’s even better if you can enroll supporters in your cause.
- Acts as a “dog whistle.” You can create subtle bonds with prospects by enlisting key words, images, and subliminal messages. For example, if my story includes serving in the Army, sustaining a service-connected disability, and being helped by the VA through rehabilitation and re-training for a new career, my story enrolls everyone who has a Vet or someone with a disability in the family. The following paragraph may be awkward, but look at the underlined segments: “If you’re looking for help with your trust, Charles Wilson law firm is for you. If bill collectors are after you and you don’t know who to call, Charles Wilson is there for you. If you have employees or are looking to hire, Charles Wilson can help. If you’re hiring employees but don’t know how much to pay, Charles Wilson will guide you.”
- Has Broad Appeal. Your story must appeal to a broad range of people who seek a hero.
- Suits your Time and Your Era. Be trendy. Tie into local cultural memes. Veterans Benefits are a hot item now. Hippie memorabilia is not.
- Distinguishes you from All Your Peers. Steven Subotnick is a very successful foot surgeon. His book, “The Running Foot Doctor,” established him as more than just a podiatrist, he was the expert in foot care for the runner (very broad appeal) because he was a runner himself. His involvement in homeopathy (trendy) also set him apart from other surgeons as one who would not go to the knife before less invasive treatments were tried. In my rehab, Arnica didn’t work for me, so he recommended and performed surgery.
- Your metastory should enable you to create a richly-embroidered tapestry out of a variety of content, from activities to metaphors to office decor.
Now that you know the basics of a metastory, use them! Build your business around them. Enroll your friends and family. Re-design your branding around it. Take action regularly to advance your story and add content. Co-ordinate your actions with complementary organizations (Co-branding). Make a list of the most important personality traits that set your hero apart from the ordinary – courage, persistence, compassion, wisdom, mastery, etc. Keep that list with you and whenever you are feeling discouraged or are tempted to perform at less than 100%, take out the list and read it. Visualize yourself as the hero you are. You will find your second wind and maintain your excellence. After all, you are the hero. Ordinary people can act when the going is easy. When the going gets tough, that’s when the hero is needed.
A real hero put’s his own feelings aside and acts in the best possible way to advance the cause. So you haven’t got time for resentment or self-indulgence. When you are about to meet with a difficult person, forgive that person in advance for all the rude things they might say. This will aid you in responding in the most effective way to get to the best outcome, instead of reacting emotionally in the moment. Make the assumption that the other person has a positive intent and is not wrong, but rather that they know something that you don’t know, which makes them act in a way you don’t yet understand. Then try to find out what that something is.
The best referral sources are difficult people. “Gosh, if RAMONA likes you, you must be really great, because she doesn’t like anybody.”
Give up on being right. Humbly take the blame even when you don’t deserve it. Validate your clients and customers’ ideas, even if they appear misguided. People are not used to being treated this way and they will feel a connection with you.
Now, as your tax advisor, I’ll give you some professional tax coaching about how to weave your metastory into your business plan to make sure that all your fun is ALL TAX DEDUCTIBLE.
- Get to know the tax game (and it IS a game). A game is an activity with a goal toward which play is directed. When you know the rules of the game, you can masterfully bend them to your will, set and attain ambitious goals, and make the process playful. For example, travel is either deductible or not based on clear rules outlined in IRS Publication 463. Do you know the rules? Use ‘em!
- Learn how to “spin.” Deductibility is primarily determined by your intent (spin). If you fly somewhere to attend your son’s wedding, the trip is not deductible. But if the primary purpose of the trip was to attend a valuable 3-hour association meeting on Thursday night and visit colleagues on Friday and Monday, you are taking a business trip. It’s deductible even if you take a weekend break from your busy work schedule to attend the wedding. All deductible: airfare, lodging, car rental, meals – everything. Everything except that round of golf on Sunday. These rules for both business owners and employees.
- Keep a diary. The IRS adores “contemporaneous: recordkeeping. Write down where you go and what you do (for your business or career), and what you spend every day. You will avoid overlooking any deductions and you will have all the evidence required to substantiate your ‘spin’. One of my clients sold a screenplay and used his diary to go back three years and document expenses directly involved in developing the story line. Build your own sorry line for your business or career that converts previously personal expenses into tax deductions. Black Mycoskie started Tom’s shoes with the promise of giving a pair of shoes to a child in need for every pair he sells. Given that story line, whenever Black hops a plane for anywhere, it’s a business trip f he packs a box of give-away shoes. What’s your story?
- Save stuff. Yes – all those receipts may be useful one day. Start a fresh box each year. To substantiate a tax deduction you need to prove two thigs: that you paid for it, and that it was an “ordinary and necessary” business expenses. Even if the expenditure appears on your credit card statement, you may need the actual receipt to identify the items purchased and prove that you bought was used in your business or career.
- Maintain good IRS hygiene. File on time, open IRS mail, respond promptly, and forgive the IRS in advance for everything they are going to do. (This practice is helpful with your weird cousin, too). You really do earn a participation grade with the IRS. There is a new IRS program called “first-time abatement” (FTA) – see the internal Revenue Manual section 20.1.1.3.6.1. This provision went into effect on 8-5-14. If you have filed all your returns on time for the last 3 years, and paid or arranged to pay (on a payment plan) your taxes, you automatically qualify for a penalty relief if the IRS disallows some of your metastory expenses.
My metastory:
My parents always hoped I would be an entertainer on Broadway. I learned to sing and play several musical instruments. I won a scholarship to a private school for the arts, and I started by adult life playing woodwinds professionally in the Army Band. Even though I showed early evidence of an affinity for keeping records (scorekeeper on the baseball team, treasurer for the stamp club, etc.), I pursued the musical path. But it never felt right. Not until a service-connected disability called a halt to my musical career. The VA sent me through vocational rehabilitation testing and told me I should be an accountant. At first I objected, but after my first class I was hooked. The VA paid for my MBA. I owe a great debt to the Army and the VA for righting my path. Now I give back the gift that I was given by dedicating my life to helping clients overcome their challenges and find their own melody, harmony, and rhythm.
Beating the computer and avoiding an IRS audit:
(Read Part 1 Here)
- List a Conservative Occupation
Right next to your signature you are requested to list your occupation. Some occupations attract conservative and law-abiding individuals, who help keep the DIF score low for everyone who lists that occupation on their 1040. From accountants, auditors, bank tellers, pre-school teachers, journalists, peace officers, and politicians (presumably low DIF), to real estate salespeople, entertainers, artists, marketing consultants, and horse trainers (presumably high DIF), each occupation has its own unique fingerprint indicative of either a conservative or liberal approach to filing taxes. I’m guessing (but I’m not sure) that the IRS even has statistics for persons listing no occupation or certain vague descriptions like “self-employed,” “business” and “manager.” NOTE: the author recommends that you do not use the occupation “Administrative Assistant” which changes meaning when the second word is truncated to only 3 letters by the IRS computer.
How can this work for you? That’s easy – put a spin on your occupation or job title to point out the more conservative and tax-law-respectful version of yourself. Or leave out the occupation if you believe there is no way to describe what you do without alarming the FBI. It is important that your occupation bears a close relationship with the types and amounts of your income and deductions; your DIF score will be lower if the relationships are within normal limits for your occupation. Common sense suggests that the occupation “accountant” would be the least frequently audited, not only because accountants tend to be more conservative and knowledgeable about the tax law, but they have the skills to read tax form instructions and produce proper supporting documentation in the event of an audit. I have reported myself as an accountant for 35 years, and even in years when my income and expenses were way outside normal figures for my occupation, I have never been audited, at least up to this date. Perhaps the writing of this book will change my luck. Bring it on, I have the records!
2. Match 3rd Party Reporting
Match all 3rd Party Reports and then some. Never miss a 1099 or W-2. Be sure to include interest income on all bank accounts, and be especially careful to check that you received a 1099 from all accounts, even the one from that savings account you closed last March and might have gone to the wrong address. If you had a savings account with a small balance you may not have received a 1099 (not required if the interest is under $10). Be sure to report some interest for that account. Reporting income that you are not forced to report may lower your DIF score.
If you received a 1099 that is in error – it doesn’t belong to you or reports more income than you received, try to get the issuer to correct the 1099. If you cannot make this happen, report all the income on the 1099 in the correct place as if you had received it, and take a deduction on the same form to reduce the net income on your return to the amount that you actually received. An example of this is found in the sample return in Appendix
3. Moderate Certain Targeted Deductions
Certain items on tax returns are frequently targeted by the IRS because they are frequently abused and auditing them produces results. Here is a list of these items and the reason the IRS looks at them:
Automobile Expenses. There are specific record-keeping requirements of which many taxpayers are unaware and often fail to follow. The records must be “contemporaneous” so the taxpayer must be able to produce them at the first audit meeting. If you go into an audit not knowing this and you make the mistake of saying “no, I don’t have a log of my business miles,” you have been blind-sided into losing the deduction, even if you really deserve it. The ability to claim a standard mileage allowance tempts many (the majority of) taxpayers to pull a number of out thin air rather than keep clipboards in their cars and meticulously track changes in their odometer reading. When given the opportunity to “estimate” business miles, who wouldn’t be tempted to overestimate to some degree? The prevalence of inadequate record-keeping and overestimation makes this category ripe with low-hanging fruit.
Meals and Entertainment. Once again the record-keeping requirements promote overestimation and inadequate record-keeping. In addition, the IRS reserves the right to disallow some meals as “lavish and extravagant,” although this term is not objectively defined.
Mortgage Interest. Amounts in excess of $50,000, even when they match the electronic reporting of the lender, raise the possibility that the mortgage balances may exceed the maximum amount ($1.1Million) on which interest may be deducted. If your mortgage interest is higher than $50,000 you may wish to deduct some amount slightly than that to give the impression that you have calculated the non-deductible portion.
Non-cash Charitable Contributions. Be sure to attach Form 8283 if your noncash contributions exceed $500. Provide an elegant description of each item donated, along with the words “exc cond”. “11 silk blouses” is more elegant than “clothing.” List an original cost that is at least 4 times the fair market value.
Travel Expenses. The temptation exists to deduct travel for vacations, weddings, and other non-deductible purposes. In addition, many travelers erroneously include their meals as travel expenses, which is incorrect, since the deduction for meals is only 50% of the amount spent, even if the meals are incurred while travelling. And again, there are specific record-keeping requirements.
Office Expenses. Many taxpayers erroneously include the cost of office equipment in this category. Equipment is an asset and must
be depreciated to be deductible. While it is acceptable to have a minimum dollar-amount “cut-off” for assets (say, anything under $100 goes in office expenses, anything over is treated as an asset), your DIF score may be lower if you reduce your office expense to an amount that flies “under the radar” by depreciating all assets, even those costing under $100. In fact, depreciating a long list of inexpensive assets may also reduce your DIF score, because it is indicative of a more conservative taxpayer.
Miscellaneous Expenses. This catch-all category tends to accumulate significant dollar amounts, appears on both individual and business returns, and provides the taxpayer with an opportunity to include a supporting statement. But because of the variability in the supporting statements, the IRS computer does not evaluate the detail statement, just scores the return based on the total in “miscellaneous.”
What can you do to protect yourself? First of all, avoid overusing these categories. If your automobile expenses are high, you could transfer some of them to advertising, travel, or education. There is no penalty for mis-classifying your expenses, as long as you can properly defend them. The Service will simply decrease one category and increase the other in the course of an audit, resulting in a change to your return, but with no additional tax assessed.
If you have large deductions in these categories, you may avert attention by classifying some of them as the less-frequently used category “cost of goods sold.” Any expenditure that was directly related to the production of income could be considered cost of goods sold. This category is used by retailers to deduct the cost of products sold in the store, and by contractors to deduct labor and materials that went into their jobs. Many other businesses may use this category, which is frequently a large percentage of gross receipts. On the other hand, be sure that your cost of goods sold is not too high in relation to your gross receipts, or you will run into another audit flag. While it is possible (especially for a contractor) to pay more for materials and labor than the revenue on the job, it is a sure audit flag if your cost of goods sold exceeds your revenue. Better to claim some of the labor as overhead on Schedule C line 26.
4. Look Closely at the Relationships
The relationships between income and expenses have a great bearing on the DIF score. For example, losses from self-employment (reported on Schedule C) result in more frequent audits than losses from rental properties (reported on Schedule E). Rental property is not as profitable as a business, the actual ownership of a rental property is often verified by third party reporting of mortgage interest, and rental losses are subject to a limit of $25,000 per year for most taxpayers, a limit which is frequently reached. Self-employment losses are less common, do not always have third-party verification, have no annual limit, and there is a much greater frequency of audits resulting in additional tax assessment. A business loss is especially inviting to the IRS when it appears on a return with a lot of other income (wages, interest, etc.). It is more tempting for a high-income taxpayer to exaggerate expenses when there is real savings.
Here is a list of relationships that should be approached with care:
1) A business loss (Sch C) that exceeds 10% of other income on the return
2) A service business without payroll expenses that shows a loss
3) Medical deductions over 10% of total income
4) A large deduction for pension contributions when there is little income.
5) Claiming head of household with 5 children in a high-rent zip code and little or no income.
(Read Part 1 Here)
