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Family Business Tax Reduction

The Benefits of Lifetime Giving. A number of techniques are available, but it is significant to point out most of them are based on lifetime gift programs, often including using trusts created during your lifetime! After a person is deceased, the planning opportunities are much more limited. Significantly, gift taxes paid during your lifetime are generally not included in your gross estate, but the gift tax is not a deduction in determining the estate tax after your death. In other words, you receive an estate tax reduction of up to 60% of the gift taxes you pay for transfers during your lifetime. Caution! If you need to keep your assets in order to maintain your standard of living and to provide for contingencies such as long-term car, you probably shouldn't pursue an aggressive lifetime giving "wealth preservation" program. In some cases, receiving significant gifts can corrupt the beneficiaries, eliminating their motivation to work. Don't let the "tax tail" wag the dog! Maybe a charitable giving program makes sense in this situation. (Outright bequests to charities are not subject to estate or gift taxes.) Family Wealth Planning Using The Family Business. In the situation where the beneficiaries are compatible and have an interest in maintaining the assets of the family, particularly real estate or a family business, significant estate (and, in some cases, income) tax benefits may be secured using a family business structure. The most popular structures right now are the family limited partnership and the family limited liability company, principally because the permit the donor(s) to retain management control of the assets that are given during his, her, or their life and have significant operational flexibility compared to a corporate structure. The principle on which the estate tax reduction is based is that a minority interest has a disproportionately lower value than a majority interest in the whole. For example, suppose a partnership's business could be sold as a whole for $1,000,000. An investor might only be willing to pay about $150,000 for a 25% interest in the partnership, because he or she would be unable to control the partnership or easily sell the partnership interest. We call the difference between the amount a buyer would pay for a fractional interest (in the example, $150,000) and the proportionate value of the interest based on the whole (in the example, $250,000) a valuation adjustment. Valuation adjustments (reductions) of 35% and up have been defended for partnership interests where there was a lack of control and a lack of marketability. A donor may make annual fractional gifts to use his or her annual gift exclusion ($10,000 per donor, per donee, per year) and lifetime credit exclusion ($600,000 for 1997, increasing to $1 million in 2006), thus securing the valuation adjustments for the gifts. If the donor retains less than a 50% interest at his or her death, that interest should also qualify for a valuation adjustment. Using Entity Fractionalization For Investment Assets. Should a family limited partnership or limited liability company be used to hold liquid investments, such as securities, cash and life insurance policies? Such entities may be defended if a legitimate purpose can be established for them, but expect an especially vigorous attack by the IRS. This strategy has been targeted as vulnerable. What The IRS Doesn't Want You To Know. The IRS hates these programs, and has attacked them vigorously. They have mostly failed in their efforts, except in the case where the transfers were made shortly before death. When the plan is done properly, the IRS will almost always capitulate or make a significant concession in settling the issue. Properly Implementing A Family Wealth Plan Is A Worthwhile Investment. When you are seeking significant tax benefits from this type of plan, it doesn't make sense to "cut corners." A competent attorney should prepare the documents. Valuations should be prepared by a qualified appraiser who is educated in this area. You should use a qualified tax advisor, such as a CPA, to assist in assuring the entity is operated properly, including setting up a separate bank account, setting up sparate books and records, properly paying proportionate benefits to partners/members, and preparing income tax returns. The up-front investment will pay dividends to your beneficiaries in tax benefits and avoided litigation costs. When Does Entity Fractionalization Make Sense? As you can see from the above discussion, the entity fractionalization strategy can require a significant investment in professional fees and potential litigation costs. There are three situations where the strategy makes sense. 1) There are assets of significant value to be transferred. ($1 million is worth thinking about. $2 million requires more serious consideration.) 2) The business has a potential for significant growth in value. (Such as a high technology start up.) 3) The business is generating significant income.

Most Profitable Internet Product

The easiest way to make money online is by selling a product that can be delivered electronically.  There are no shipping or fulfillment costs eating away at your revenue.  Electronic products are easy to produce and it is not necessary to get anything published.  Another great reason for selling products electronically is that delivery is instant and free.  Selling products online is completely automated or hands free.  So what type of products can you sell electronically. Selling software online is excellent because new software is always necessary.  Programmers at local colleges come cheap, if you have the funds.  If you do not have extra funds, cut them a profit for the first two years.  You will still earn more than your expenses. Writing an eBook is extremely easy.  People are constantly looking for information.  Finding a nicely packaged info packed eBook is so much easier than doing all the research yourself.  These eBooks sell like hot potatoes and you do not have to worry about printing costs or editors. Starting a newsletter on a highly popular topic will bring in a lot of people quickly.  You can have these people submit articles themselves too, which will add to your website content.  You just need to make sure the information they send is reputable.  Later, you can offer paid subscriptions, advertising, and product promotions on your website which will drive traffic and cash. Members only web sites offer the customer a service each month or week or day and charge them a fee.  As long as you are serving your customers with intensity, you will keep them happy for a very long time.  This is very labor intensive but the results are well worth it. So, as you can see, you could offer a service on your website, such as dog walking or wedding planner, but that would mean that you would need a lot of resources, employees, expenses, etc.  Selling an electronic product online is easier for someone just starting out as an entrepreneur.

Finding your “Niche”

When you are considering starting an online company, you want to make sure you find the right product.  What do you want to sell.  What is your passion.  What subject or topic do you have a lot of knowledge about.  Let me start by telling you that selling an information product online is easier than selling a service.  But, selling a service online makes more money with monthly memberships. Before you spend all your time working on a website and writing up eBooks, you want to be sure that your customers are going to be interested in what you are selling.  Do your market research.  Start by seeing how many competitors you have -this is a good sign.  Read through newsgroups, discussion boards, and chat rooms and learn about your target market customer base.  If you already have an email list, send them a survey to see what they are most interested in. Most internet marketers preach that there are three reasons why a customer will want to buy your product.  Your product has solved a problem for your customer.  Your product has made life easier or more comfortable for your customer.  You are very passionate about your product and it shows in everything you do. When researching your niche, you may want to use and find the current top sellers.  Find out what people are reading about.  You will want to research keywords with keyword tools such as  You need to discover which keywords are being searched for frequently. Doing a little poking around your competitors sites isn’t a bad idea.  This is one way to come up with ideas on what would make your company different or better.  Take a look at their traffic rankings and their related links.  By analyzing this information, you can see how many visitors they have each day and how profitable their company is. Once you find your passion, ask yourself does this serve my customers.  You want to provide an excellent service to each and every person that spends their money with you.  This cuts down on complaints, bad reputations, and, worse of all, chargeback’s.

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