Posts Tagged ‘accountant’

How to turn a tax tragedy into a wealth-building miracle

Wednesday, April 29th, 2009

Do you have a large amount of money in an IRA, profit-sharing plan, 401(k) plan or other qualified plan? Or know someone — family, friend or co-worker-who does? Then, this article will not only save you a ton of taxes, but will show you how to dramatically increase your after-tax wealth tax-free.

This is one of those bad-news, good-news tax stories. First, the bad news. Some day the money in your plan must be distributed: to you or your beneficiaries. If you make the mistake of becoming rich, those beautiful dollars that took you decades to accumulate will be worth only in the 27 percent range to you and your family. You see, the IRS will get the rest in taxes. Yep, typically you will lose about 73 cents out of every dollar because you must pay two taxes on your plan distributions: income tax and estate tax. It’s even worse in some high-tax states like New York (check with your accountant).

How do I define rich? You are irrevocably in the highest income tax bracket (say 40 percent, state and federal) and highest estate tax bracket (55 percent, using 2011 rates.) Sorry, but the tax collector will take the lion’s share of your plan assets whether you get plan distributions during life, or the distributions go to your heirs after death.

Can anything be done to prevent this tax robbery? Yes! Here comes the good news. Regular readers of this column know I’m part of a national tax network (other professionals who work together and share tax knowledge). Well, some of the experts in the network have devised two tax concepts to enrich your family instead of the IRS. These concepts are designed to help individuals who have accumulated large amounts (from $200,000 to millions of dollars or more) in their plans.

Suppose you have $1 million (fill in your own exact number) in one plan or all of your plans combined. If you fail to take advantage of one or both of these concepts you will lose $730,000 (or more) in taxes to the IRS. Just take 73 percent of the amount in all your plans, and you can clearly see the full tax-disaster picture. Of course, your local tax collectors (state, as well as your local county or city) may grab an additional piece of the tax action. Now, let’s look at each concept separately.

The first concept — called the Single Premium Strategy (SPS) — to overcome the tax robbers combines three strategies:

• An immediate-pay annuity (typically a joint-life annuity if you are married);

• A life insurance policy (second-to-die if you are married) and;

• An irrevocable life insurance trust.

In one real-life case, an unmarried reader of this column turned $325,000 into $2,878,385 (all taxes paid). Another reader, who is married, turned $270,000 into $3,496,063 (all taxes paid). Single or married, it’s smart to get an exact quote of how much tax-free wealth an SPS would create for you and your family.

The second concept is named Retirement Plan Rescue (RPR) When using an RPR, your qualified plan uses the funds in the plan to buy the insurance: either for a single life or second-to-die for a husband and wife. A married reader (Joe) used an RPR to buy $10 million of second-to-die insurance, which will go to his kids tax-free. Joe actually turned $567,900 into $10 million. Joe’s wife Mary called the entire transaction a “tax miracle.”

You’ll also be surprised at how easy the above strategies are to do. So, if you are lucky enough to be rich, but unlucky enough to have a substantial part of your wealth in a qualified plan (IRA, profit-sharing, 401 k or similar plan), you owe it to your family to take a close look at the above two tax-miracle concepts and it’s easy to do.

I have arranged for readers of this column to get a free analysis of their plans for both of these concepts. Just fax your name and birthday (also your spouse if married), the total amount in all your plans combined; and all phone numbers (business/home/cell) where you can be reached to 847-674-5299. Please mark SPS and/or RPR as the top of the page. You are welcome to include other information, questions or problems concerning you, your business or your family.

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Posted in Estate Tax, General Tax Strategies, General Tax Talk | No Comments »

Old-Time Tax Religion Yields To New-Time Tax Religion

Monday, April 13th, 2009

If you are a tax sinner, please step forward. Today’s sermon at The First Anti-Tax Church is entitled, “How You Can Enrich the IRS When Transferring Your Business.” Strange title? Not really. It’s the conventional wisdom or what our preacher calls “The Old-Time Tax Religion.”

Following is a true story of good against evil taken straight from the pages of the ever-growing-tax-business bible. If you’re a business owner with two or more children-listen up.

A business owner (age 68) (we’ll call him Joe) from Alabama told me how three employees (ages 38, 45, and 52) had helped build his business (Success Co.) over the years. Profits were plowed back into the business. Today its worth $10 million, with 80 percent owned by Joe and 20 percent owned by the employees. Joe and his wife, Mary, have three children, none active (and not likely to be) in the business.

Joe’s goals are simple: After he passes on, the business should go to the three employees; his three children should get the value ($8 million) of Joe’s share of the business. What’s the conventional wisdom? Have Success Co. own life insurance. The actual amount of insurance is now $11 million. The extra $3 million allows for growth.

The insurance funds a buy-sell agreement. After Joe dies, Success Co. will buy Joe’s stock. Then the employees will own 100 percent of the business. (Good! That’s what Joe wants.) The kids will get the $8 million or more, which is also what Joe wants. Perfect? Joe’s lawyer, accountant, and insurance consultant assured him that this is — by conventional wisdom — the “best” way to go.

What’s wrong with the picture? Each dollar of those insurance proceeds used to buy Joe’s stock will be divided two ways: 55 cents to the IRS; 45 cents to the kids. Unwittingly, the IRS, not Joe’s family will benefit the most from Joe’s business, which took him a lifetime to build.

What to do? The solution may vary with your particular situation (for example, how many kids you have in the business, how many are nonbusiness children, your age, your wife’s age, the value of your business and the value of the rest of your assets). But here’s a plan to beat the pants off of the conventional wisdom and the IRS, legally. And it’s easy to do.

Step one: Get the insurance out of the corporation into Joe’s name and then into an irrevocable life insurance trust. No, the insurance proceeds will be free of the estate tax.

Step two: Recapitalize Success Co. (which will create voting and non-voting stock) so Joe can keep voting control (a tax-free transaction) for as long as he lives. Say there is 100 shares of voting stock and 10,000 shares of non-voting stock. Joe will keep the 100 shares of voting stock (and absolute control) for as long as he lives.

Step three: Create an annual stock-bonus/stock-gift program. Success Co. will give stock bonuses of non-voting stock to the employees. (In a more typical example, the employees would be Joe’s children.) Joe would make annual gifts of Success Co. stock to his children and grandchildren.

This sermon does not attempt to cover all the details of the plan outlined above. Find a professional who knows how to use this structure to craft that transfers most (in many cases all) your wealth free of the estate tax. More importantly, your estate tax liability (whatever the amount) will be transferred, in effect to the insurance carrier.

When all the smoke clears, either your estate tax will be zero or paid 100 percent by tax-free insurance proceeds. It’s time for you and your professionals to get that new-time tax religion.

Want a head start on how to win the transfer/succession/estate tax game? Visit my Web site or call to discuss your specific concerns.

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Posted in Corporate Tax, Estate Tax, Family Tax Issues, Insurance | No Comments »

How To Turn A Tax Tragedy Into A Miracle

Monday, April 13th, 2009

Do you have a large amount of money in an IRA, profit-sharing plan, 401(k) or other qualified program? Or know someone — family, friend or co-worker — who does? If so, this article will save you a ton in taxes and show you how to dramatically increase your after-tax wealth.

This is one of those good-news, bad-news situations. First, the bad news. Someday the money in your plan will be distributed: to you or your beneficiaries. If you happen to be wealthy, those beautiful bucks which took decades to accumulate will be worth somewhere in the 27 percent range. The IRS gets the rest in taxes. Yep, typically you lose around 73 cents out of every dollar because you are required to pay two taxes on your plan distributions: income tax and estate tax. It’s even worse in high-tax states like New York (check with your accountant). How do I define wealthy? You are irrevocably in the highest income tax bracket (say 40 percent, state and federal) and highest estate tax bracket (55 percent, using 2011 rates). Sorry, but the tax collector will take the lion’s share of your plan’s assets whether you get distributions during life, or they go to your heirs after death.

Can anything be done to prevent this robbery? Yes! Here comes the good news. Regular readers of this column know I’m part of a national tax network (other professionals who work together and share tax knowledge). Some experts in the network have devised two tax concepts to enrich your family instead of the IRS. These concepts are designed to help individuals who have accumulated large amounts (from $200,000 to millions of dollars or more) in their plans.

Suppose you have $1 million (fill in your own exact number) in one plan or all of them combined. If you fail to take advantage of one or both of these concepts you will lose $730,000 (or more) in taxes to the IRS. Just take 73 percent of the amount in all your plans, and you can clearly see the full tax-disaster picture. Of course, your local tax collectors (state, as well as your local county or city) may grab an additional piece of the action.

Now, let’s look at each concept separately.

The first concept — called the “Single Premium Strategy (SPS)” — combines three strategies: (1) an immediate-pay annuity (typically a joint-life annuity if you are married); (2) a life insurance policy (second-to-die if you are married) and (3) an irrevocable life insurance trust. In one real-life case, an unmarried reader of this column turned $325,000 into $2,878,385 (all taxes paid). Another reader, who is married, turned $270,000 into $3,496,063 (all taxes paid). Single or married, it’s smart to get an exact quote of how much tax-free wealth an SPS would create for you and your family.

Another concept, called “Retirement Plan Rescue” (RPR), uses the funds in the plan to buy the insurance: either for a single life or second-to-die for a husband and wife. A married reader (Joe) used an RPR to buy $10 million of second-to-die insurance, which will go to his kids tax-free. Joe actually turned $567,900 into $10 million. Joe’s wife Mary called the entire transaction a “tax miracle.”

You’ll also be surprised at how easy these strategies are. So, if you are lucky enough to be wealthy, but unlucky enough to have a substantial amount of assets in a qualified plan — IRA, profit-sharing, 401 (k) or similar plan — you owe it to your family to take a closer look at the tax-miracle concepts. It’s easy.

I have arranged for readers of this column to get a free analysis of their plans for both of these concepts. Just fax (1) your name and birthday (also your spouse if married); (2) total amount in all your plans combined; and (3) all phone numbers (business/home/cell) where you can be reached to (847-674-5299). You are welcome to include other information, questions or problems concerning you, your business or your family.

Tags: , , , , , , , , , , , , , , , , , , ,
Posted in Estate Tax, General Tax Strategies, Insurance, Investment Strategies | No Comments »