Watch Out!...The Baby Boomers Are Coming

Joe is a baby boomer (early 40s to mid 50s). Typically, the difference between this Joe and Joe when he gets about a generation older is the way he views wealth.

Columns From: 6/1/1999 Modern Machine Shop,

Joe is a baby boomer (early 40s to mid 50s). Typically, the difference between this Joe and Joe when he gets about a generation older is the way he views wealth. The younger Joe is still in high gear, trying to accumulate wealth, while the older Joe is trying to get rid of his wealth (by passing it on to his family) because he thinks that's the way to save on estate taxes.

Before going on, it is important to note that at any age Joe typically has three goals: (1) maintain his (and Mary's) lifestyle as long as they live; (2) eliminate the estate tax, if possible; and (3) control his business and other assets for life.

Rarely does Joe (at any age) want to stop accumulating wealth, but it is amazing how his planning attitude intensifies when he realizes the impact of the potential estate tax blow. The IRS can (and will) grab up to 55 percent of Joe's wealth.

We have found that the older Joe gets, the more anxious he becomes about how much of his wealth will be lost to the IRS after his last heartbeat.

But the boomers generally are smarter taxwise than their dads were. Why?...They begin the planning process earlier.

The plain fact is that the proper plan can accomplish all of your goals at any age. But let us be clear: It is much easier to develop a lifetime plan that will transfer all (every dime of it) of your wealth (that you own now or will own when you go to the big business in the sky) to your family when you're a boomer than when you're 20 or more years older.

The message is simple: Procrastination favors the IRS. A lifetime tax plan (no matter what your age) puts you in the tax-saving driver's seat. An estate plan (typically, a will and a trust) is only the beginning. Your lifetime plan must dovetail with your estate plan. Then you can accomplish all of your goals, as they are today and as they change overtime.

How To Write Off Your Company's Loss On Your Tax Return

Suffering a loss in your corporation—whether a C corporation or an S corporation—is bad enough. Not being able to deduct that loss is doubly painful.

Here's how the law normally puts you into an economic tax trap. If you own a C corporation, you cannot deduct your company's losses on your return. The losses belong to the company and can only be offset against company income.

What if you are an S corporation? Your company's losses pass through to you and are deductible on your return. But there may be a problem if there are other shareholders—your children, for example. You can only deduct your share of the company's losses. Of course, your children also can write off their share. Sorry, but in their low tax bracket, the losses offer little or no tax savings. The tax savings would be better if you could deduct the entire loss on your personal return.

An ingenious business owner found a way to escape the tax trap. He entered into a simple, yet unique compensation arrangement with his company that gives him big bonuses when the company has a good year. However, in a down year, he reverses this strategy by agreeing to reimburse the company fully for its losses. It's different, but it works.

The Tax Court ruled that this kind of arrangement gives our company-owner tax hero a deduction for the amount of the reimbursement. The wonderful tax result: If your company is a C corporation, you move your company's losses to your return. If your company is a S corporation, you shift the losses of all shareholders to your return.

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