A reader of this column who attended one of my tax-planning seminars asked an interesting question, “How do you determine what subjects to write about in your columns?” Great question.
The answer: Around 80 percent of the items that appear in this column are based on areas of the tax law readers call and ask about and include the real-life consulting problems we help column readers solve. The other 20 percent is a combination of new tax stuff and any of the hundreds of other items involving a tax problem or concern that is making the caller spin in frustration.
Here’s a list of the top-ten reasons readers call.
1. Maintain my (and my spouse’s) lifestyle for as long as we live: A steady and assured flow of income for the rest of your life is essential. There are a host of strategies to accomplish this goal, depending on your age, health and a number of other factors. The most used strategy is a wage continuation plan that continues the business owner’s salary for as long as he/she (or the spouse) lives. The plan escapes the estate tax monster.
2. Transfer/succession planning for your business: Properly done, you can easily transfer your business to your kids tax-free: (no income tax, no estate tax) using an intentionally defective trust (IDT). And still keep control. Yes, you can. How? Issue voting shares (say 100) which you keep and transfer the nonvoting shares (say 10,000) to the kids via the IDT.
3. Wealth transfer/estate planning: Mimic others (including business owners) who have used a Wealth Transfer Plan to keep all their wealth; the IRS gets none, their family keeps 100 percent. Yes, you can do it too. Best of all, it’s easy to do. We have done it hundreds of times for family business owners and their families.
4. Second-tax opinion: Your estate plan is done, yet you will still lose a large portion of your hard-earned wealth to the IRS. You’re frustrated. You need a second opinion. Get it. Here’s a little test: Your estate plan is not done, unless it delivers 100 percent of your wealth to your family, all taxes paid in full.
5. Valuation of your business: This is where the IRS can clobber you. But not if you do it right. Done right, you should get discounts (totaling about 40 percent). For example, a business worth $5 million would only be worth $3 million for tax purposes. Do not cheat. The 40 percent discount gives you plenty of wiggle room
6. Buy/sell agreement: When your business has more than one owner, a properly drawn buy/sell agreement is − usually insurance funded − a must. It provides for a smooth transition and guarantees keeping the business interest (usually corporate stock) exactly where you want it. Also keeps the IRS out of your hair.
7. Large amounts in a qualified plan: For example, your profit-sharing plan, 401(k) or rollover IRA. Sorry, but the IRS can take 64 percent (or more) of your plan funds. Your family only receives 36 percent (or less). Proper planning typically turns every $25,000 of after-tax dollars in your plan into $100,000 (or more) for your family … tax-free. A reader (married) recently turned $375,000 into $2.5 million of tax-free wealth.
8. Create tax-free wealth to educate your children or grandchildren.
9. Protect your assets from creditors.
10. Eliminate the capital gains tax when selling appreciated assets.
Keep those phone calls coming so I can keep writing what you want to read. Or (1) if you want to learn more about any of the 10 items listed above; or (2) you want to learn the organized, step-by-step system we actually use in practice to solve your crucial estate tax problems, accomplish your immediate income tax goals and most of all create a comprehensive lifetime tax plan; that dovetails with your estate plan.
Browse my website, taxsecretsofthewealthy.com. Or call me (Irv) at 847-674-5295 or email me (email@example.com).