lawrence-barrett-taxes - ncpa · 3. learn the benefits of owning real estate through depreciation,...
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Lawrence C. Barrett, CLU, ChFC , AEP®
Independent Pharmacy Consulting Group
Lawrence C. Barrett is a registered representative of Lincoln Financial Advisors Corp.
Securities offered through Lincoln Financial Advisors Corp., a broker‐dealer. Member SIPC. Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies.
Independent Pharmacy Consulting Group, LLC is not an affiliate of Lincoln Financial Advisors Corp.
CRN‐1889908‐090617
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Disclosure
• Lawrence Barrett, CLU, ChFC, AEP is with Lincoln Financial Advisors/Sagemark Consulting. The conflict of interest was resolved by peer review of the slide content.
Learning Objectives
• Discuss 2017 tax laws and the implications for business and real estate ownership.
• Outline how to use current tax deductions to generate future tax‐free retirement income.
• Discuss strategy changes and next steps regarding business taxes.
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Thisseminarisforinformationalpurposes.Allsituationsaredifferentandthisseminardoesnothaveregardtothespecificplanningobjectives,financialsituationandtheparticularneedsofanyspecificpersonwhomayviewthisseminar.
Theexamplesinthispresentationarehypotheticalforillustrativepurposesandarenotindicativeofanyparticularinvestmentorperformance.
Theinformationpresentedisnotintendedorshouldbeconstruedasinvestmentadviceandisnotarecommendationforretirementsavings.
Alldiscussionandstrategiespresentedareprovidedforinformationalpurposes.
LincolnFinancialAdvisorsCorp.anditsrepresentativesdonotprovidelegalortaxadvice.Youmaywanttoconsultalegalortaxadvisorregardinganylegalortaxinformationasitrelatestoyourpersonalcircumstances.
LincolnFinancialAdvisorsCorp.canprovideaccesstothirdpartyunaffiliatedresourcestoassistbusinessownersinExitPlanning.
LawrenceC.Barrett,CLU,ChFC,AEP®WealthPlanner,RegisteredRepresentative
43yearsofexperienceinfinancialservicesindustry
GraduatedfromOhioNorthernUniversityin1971
BachelorofScienceinBusinessManagementandMarketing
HasworkedwithIndependentPharmaciessincethelate1970s
Speakstopharmacystudentsonbecomingasuccessfulbusinessowner
FrequentCEspeakerforCardinalHealth,NCPA,buyinggroups,andstatepharmacyassociations
Ihavenofinancialrelationshiptodiscloseandwewillnotdiscussofflabeluseand/orinvestigationaluseinourpresentation.
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TaxReductionStrategiesforPharmacists:FromStartingtoExitingYourPharmacy
LearningObjectives:
1. Whatdotaxreformorpotentialtaxlawchangeslooklikefor2017.
2. Discussthebusiness,legal,andtaximplicationsregardingwhetheryouownyourbusinessorrealestateasanLLC,corporationorsoleproprietorship.
3. Learnthebenefitsofowningrealestatethroughdepreciation,costsegregation,like‐kindexchange,andpassiveactivitylosses.
4. Understandhowimportantyourfamilycanbeinhelpingyoureducetaxesandsaveforchildren’scollegeandretirement.
5. Exploreretirementstrategiesdesignedtohelpthepharmacyowneraccumulatesignificantwealthusingcurrenttaxdeductionsandgeneratingretirementincome.
6. ExposehowthegovernmentusestheInternalRevenueCodetoshapetheeconomy,andpromotesocial,agricultural,andenergypoliciesthroughtaxsavingsopportunitiestotaxpayers.
7. Learnwhyyouraccountantmayactuallybecostingyoumoremoneythananysinglepersoninyourlife,withthepossibleexceptionofyourkids.
LawrenceC.BarrettisaregisteredrepresentativeofLincolnFinancialAdvisorsCorp.SecuritiesofferedthroughLincolnFinancialAdvisorsCorp.,abroker/dealer.MemberSIPC.InvestmentadvisoryservicesofferedthroughSagemarkConsulting,adivisionofLincolnFinancialAdvisors,aregisteredinvestmentadvisor.InsuranceofferedthroughLincolnaffiliatesandotherfinecompanies.IndependentPharmacyConsultingGroup.LLCisnotanaffiliateofLincolnFinancialAdvisorsCorp.
Takeaway#1
TaxPlanningismoreimportantthanever.Taxeshaveincreasedandareexpectedtoincreaseasfederaldeficitscontinuetogrowandinterestratesrise.
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Takeaway#2
TheFederalTaxCodeisover74,608pages,complexandoverwhelming.UsingtheTaxCodeproperlycanprovidemanytaxreductionstrategiesthatmaysaveyouhundreds,thousands,andevenmillionsofdollars.
Takeaway#3Youmustengagetheservicesofataxprofessionalproactive inidentifyingtaxreductionstrategiesandopportunities.
Proactive
Reactive
Inactive
The‘reactive’accountantisthebravesoulthatcomesontothebattlefieldafterthebattlehasbeenfoughtandcountsthedeadandbayonetsthewounded
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AreYouFragmentedorCoordinated?
Afragmentedapproachresults
inthefailuretocompletely
addressthebusinessowner’s
fundamentalneedsorto
properlytransitionbusiness
successintopersonalsuccess.
Cross Disciplinary Financial Coordination
TheFourPillarsofWealth
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FiveDimensionalTaxSystemRegularTax
AMT
Pease / PEP
SuperTax
NIITYOU
39.6%
<$9,325
$91,900
$37,950
$191,650
$416,700
$418,400
$418,400+ $470,700+
$470,700
$416,700
$233,350
$153,100
$75,900
<$18,650
20% CapitalGain Rate
15% CapitalGain Rate
0% CapitalGain Rate
Single Married, Joint
3.8% Net Investment Tax
$250,000
Pease / PEPPhase-outs
35%
33%
28%
25%
15%
10%
AMT28%26%
Medicare “Add-on” Tax - 0.9%
2017 Total Tax Picture
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2016StateIncomeTaxRates
HowTax‐FriendlyisYourState?
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Investments MunicipalBonds MasterLtd.Partnership
REITs
StatutoryTaxShelters 401(k)/SimpleIRA IRA/RothIRA DeferredAnnuities
LegalDocuments CharitableRemainderTrust CharitableLeadTrust IntentionallyDefectiveIncomeTrust
AssetLocation Taxable TaxDeferred Tax‐Free
TaxStrategyToolbox
TaxReductionStrategies ChoiceofEntity
TaxAwareInvesting
RetirementPlans
Sec.1031Exchange
PersonalGoodwill
CharitablePlanning
SCorp‐ ExitPlan
IncomeSmoothing
BracketManagement
IncomeShifting
Tax‐FavoredCashValue
RothConversion
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CHOICEOFENTITY
ENTITYOPTIONS
CS
LLC
PSP
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AreYouOverpayingEmploymentTaxes?Mikeis100%ownerandactiveinrunninghispharmacy.Heemploys7peopleandisorganizedasanSingle‐MemberLLC*.Hereports$330,000innetprofitonwhichhepaysSocialSecurity(upto$127,200)andMedicaretaxes(unlimited).
Current (SMLLC) Revised (SCorp)
100%OwnerSMLLC
MateriallyParticipatesFilingStatus:Single
IncomeSource $
GuaranteedWages 120,000
NetProfit 210,000
Total 330,000
EmploymentTax $
SocialSecurity* 14,694
MedicareTax 9,570
Addt’lMedicare 1,170
Total 25,434
IncomeSource $
Wages 120,000
NetProfit 210,000
Total 330,000
EmploymentTax $
SocialSecurity* 14,694
MedicareTax 3,480
Addt’lMedicare 0
Total 18,174
CHOICEOFENTITY• UnlimitedLiability– SP/GP• AllProfitssubjectemploymenttax– LLC/SP SocialSecuritytax(12.4%)‐ limited Medicaretax(2.9%)– unlimited Additional0.9%over$200k/$250k
• DoubleTaxation‐ C Goodwill
TaxReduction$7,260annually
$72,600(10yrs.)
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TAXAWAREINVESTING
CongressionalIncentivesforOil&GasDevelopment
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Oil&GasDevelopment• InternalRevenueCode not a “tax‐loophole”
Congress’ quest for energy independence
• IntangibleDrillingCosts/Depletion/Deprec. Costs incurred to drill and complete well
May range from 70 – 85% of total cost to drill
• FunctionalAllocation Amount of cost allocated to investor
May range from 80 – 95% tax deduction
• PassiveLossRules/AlternativeMinimumTax
ExampleGeorgehastaxableincomeof$1,500,000anddecidestoinvest$250,000intoanoil&gasinvestment.
TotalInvestment$250,000
CashOutlay$160,000
TaxSavings$90,000
CashOutlayRecouped5– 6yrs.$160,000
TotalInvest.Recouped8‐9years$250,000
InvestmentReturnsContinue20– 25years
Returnsfromeachwellmayvary.
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Recovering“PassiveLosses”
ThisPIGisaCASHCOW
Recovering“PassiveLosses”• PassiveActivities Tradeorbusiness– nomaterialparticipation Rentalactivities*‐ special$25,000allowance**
• PassiveActivityLoss Passivelossesinexcessofpassiveincome Form8582,SuspendedLosses
• PassiveActivityIncome Offsets“passiveactivitylosses” Creates“tax‐free”income/cashflow
*Unlessarealestateprofessional**Allowanceisreducedby50%IfMAGIisover$100,000andphasedoutat$150,000.
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ExamplePhilhassuspendedpassivelossesfromhisrentalrealestatepropertiesreportedonForm8582whichhecannotdeduct.
SuspendedPassiveLosses$185,000
PassiveIncomeGenerator($250,000)
$12,500
PassiveLosses$12,500
Tax‐FreeIncome$12,500
SuspendedPassiveLoss$172,500
TAXAWAREINVESTING• UseIDCs tosheltertaxableordinaryor“passive”incomeorthetaxableproceedsfromthesaleofyourpharmacyorrealestate
• Utilizesuspendedpassivelossesbycreatingpassiveincometogenerate“tax‐free”cashflow
Oil&Gas$90,000annually
PIG/PAL$12,500annually($125,000– 10yrs.)
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RETIREMENTPLANS
RetirementPlanTypes
DEFINEDCONTRIBUTION
PLANS
DEFINEDBENEFITPLANS
INDIVIDUALRETIREMENT
PLANS
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Interestedinmaximizingyour401(k)Plancontributions?
Safe‐Harbor401(k)Plan
Ownercancontributethemaximumannualdeferralamountof$18,000(plus$6,000if>50yearsold)
Ownerreceivesadditionalsavingsfromcompanymatchingcontributions
ToavoidtheIRSnon‐discrimination(ADP/ACP)tests:
• Elective: 100%ofemployeeelectivecontributiononfirst4%ofcompensation;or
• Non‐Elective: 3%contributionofcompensationforalleligibleemployees
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Interestedinadditionaltaxdeductionsandincreasedretirementsavings?
CashBalancePlan– HybridPlan
DEFINEDBENEFITPLANTRAITS• Annualactuarialcalculations.
• Participant’saccountcreditedwithasetpercentageofyearlycompensationplusinterestcharges.
• Employerassumesinvestmentrisk.
DEFINEDCONTRIBUTIONPLANTRAITS• Valueofbenefitsdeterminedonanindividualaccountbasis(butarenotsegregatedintoindividualaccounts).
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CashBalancePlan‐ examplePeterislookingtoincreasehisretirementsavingsbutalsowantstoreducehisannualincometaxliability.HesetsupaCashBalancePlaninconjunctionwithhisSafeHarbor401(k)Plan.
Name Age Pay 401(k)EmployerSafeHarbor
EmployerCashBalance Total
%ofPay
Owner 56 $265,000 24,000 13,000 $182,850 $219,850 74.0%
Employee1 28 47,000 1,800 1,410 705 3,915 5.0%
Employee2 29 67,000 3,275 2,010 1,005 6,290 5.0%
Employee3 33 49,000 1,900 1,470 735 4,105 5.0%
Employee4 50 88,000 0 2,640 1,320 3,960 5.0%
Employee5 38 79,000 3,400 2,370 1,185 6,955 5.0%
Employee6 51 64,000 3,000 1,920 960 5,880 5.0%
TOTAL 659,000 37,375 24,820 188,760 $250,955
ContributionstoEmployees 11,820 5,910 17,730
ContributionstoOwner 13,000 182,850 195,850
%ofContributionstoOwner 92.0%
RETIRMENTPLANSSafeHarbor401(k)Plan
Maximize401(k)contribution CashBalancePlan
Ownerreceives92% oftotalcontributions
______________________________________________
EmployerTaxDeduction$213,580
______________________________________________
OwnerRetirementSavings$219,850
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§1031LIKE‐KINDPROPERTY
OutrightSaleofRealEstateOriginalCost $500,000Improvements 100,000LessDepreciation (148,000)TaxableBasis $452,000
SalesPrice $1,000,000TaxableBasis ‐ 452,000TaxableCapitalGain $548,000TAXCALCULATION
CapitalGain‐ Deprec.Recapture @25% $37,000Long‐termCapitalGain@20% 80,000
TotalFederalTax $117,000
Sellerisleftwithonly
$883,000to
reinvest
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§1031Like‐KindPropertyDefinedAnypropertyusedinatradeorbusinessorasaninvestmentincludingplanes,boatsandvehiclesbutmostoftenassociatedwithrealestateorland.
CondosorApartments
SingleFamilyorDuplexes
IndustrialProperty
CommercialProperty
RetailProperty
RawLand
Theusebythetaxpayer‐ i.e.investment,business,ortradeismorecriticalthenthetypeofproperty.Thefollowingisnot considered“like‐kind”property:
Stockintradeorpropertyheldforsale
Stocks,bondsornotes
Inventory
Personalresidence
Constructionorfix/flipsforresale
PartnershiporLLCmemberinterest
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The§1031ExchangeTimetableThecriticaltimelimitsatworkhereare:
3parties(usually):exchanger/buyer/seller
Facilitatedbya“qualifiedintermediary.”
45dayrule/180dayrule(noextensions)
Timelimitsbegintorunonthedatetheexchangertransferstherelinquishedpropertytonewbuyer
The“dateoftransfer”isthedateofrecordingortransferofthebenefitsandburdensofownership
The§1031ExchangeMechanics
BUYER
TAXPAYERQUALIFIED
INTERMEDIARY
SELLER
RelinquishedProperty
RelinquishedProperty
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§1031LIKE‐KINDPROPERTYOriginalCost $500,000
Improvements 100,000
LessDepreciation (148,000)
TaxableBasis $452,000
ExampleRelinquishedProperty
ReplacementProperty
TaxableGain
Replacement ValueGreater $1,000,000 $1,200,000 $0
ReplacementValueLess $1,000,000 $950,000 $50,000
Sellerpaysnocapitalgainsandinveststhefullvalueoftheproperty
PERSONALGOODWILL
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WhyisPersonalGoodwillImportant?CCorporation$2,000,000
SCorporation$2,000,000
CorporateTax
$763,250
PersonalTax(CLiquidation)
$247,350
TOTALTAXLIABILITY$1,010,600
PersonalTax(SPass‐Thru)
$400,000
DifferenceinTaxLiability$610,600
Personalvs.EnterpriseGoodwill Reputation Expertise Skill
Knowledge RelationshipswithCustomers
Answerthefollowingquestions(sample): Howinvolvedareyouintheday‐to‐dayoperationsofyourpharmacy?
WhatpercentageofthePharmacy’srevenuesareattributabletoyourefforts?
Wouldpharmacyprofitsdeclineconsiderablyifyouwerenotthere?Howmuch?
WhatarethereasonscustomersareattractedandretainedbythePharmacy?
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PersonalGoodwillRequirements
TwoImportantStepsPersonalGoodwillPurchaseAgreement
PersonalGoodwillAppraisal
PersonalGoodwillExample
CCorporationSalePrice=$3.25M
Inventory
$500,000
FixedAssets$150,000
Goodwill
$2,450,000
RestrictedCovenant$150,000
PersonalGoodwill
$1,100,000
CorporateGoodwill
$1,350,000
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PERSONALGOODWILLElectSCorporationStatus– 5‐YearBIGTax
Pass‐ ThroughEntityCapitalGains
TaxSavings$751,000
CCorporation‐PersonalGoodwill
PersonalGoodwillCapitalGains
TaxSavings$299,000
RESTRICTEDPROPERTYTRUSTS
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Restricted Property Trust
The Restricted Property Trust is a vehicle for successful business owners to mitigate income taxes and appreciate assets. This plan offers considerable pre‐tax contributions, tax deferred growth, and tax advantaged distributions.
Restricted Property Trust (RPT)What is a Restricted Property Trust (RPT)?
• An employer‐sponsored plan for owners and/or key executives.• Provides a 100% corporate tax deduction and only partial income inclusion for the participant.• Primary objective is to provide tax‐favored long‐term cash accumulation and income distribution in a conservative vehicle.
What are the tax characteristics of an RPT?• Each annual contribution made to a welfare benefit trust is fully deductible by the employer based upon Internal Revenue Code (IRC) Section 162 and Section 419, and only partially taxable to the participant.
• Each annual contribution is fully deductible by the employer on account of transferring property that is subject to substantial risk of forfeiture based upon Internal Revenue Code (IRC) Section 162, Section 402, and Section 83(h)
• Asset growth is in the cash value of a life insurance policy and is, therefore, tax deferred.• The policy is delivered to the participant at plan termination, at which time a portion of the cash value is taxable.
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Restricted Property Trust (RPT)Is an RPT a qualified plan or form of deferred compensation?
• Not a qualified plan subject to limits and tests• It does not impact contributions to your qualified plan.• Not a deferred compensation plan where the corporation only receives a deduction equal to the inclusion of the participant.
Is an RPT for everyone?• Absolutely not. First, the planned funding period and any plan extensions must be for no less than 5 years.
• If the company is unable to make the annual contribution to the RPT in any year, the assets inside the plan are forfeited to a predetermined charity of the owner’s choice.
Is there an annual contribution limit?• The annual contribution limit is tied to “reasonable compensation.” This typically allows a high‐income‐earning business owner to contribute several hundred thousand dollars per year or more.
Restricted Property Trust (RPT)How does an RPT achieve such results?
• Fully tax‐deductible contributions are made by the business to a Restricted Property Trust for a select group of participants.
• Of the contribution, a portion is considered current taxable income to the participant.
• The remaining portion of the contribution funds the life insurance and is not considered taxable income to the participant.
• RPT Treatment depends upon the provisions of the life insurance contract.
• RPT tax treatment depends upon a Key Trust Provisiono The employer must make the selected annual contribution each year for the restricted periodo The restricted periods are in 5‐year increments.o Failure to make the annual contribution causes both the policy to lapse and the surrender proceeds to be
given to a charity of your choosing (i.e. known as a “risk of forfeiture”).
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Restricted Property Trust (RPT)
Business Entity
Participant recognizes income on $15,000 of contribution (making a 83(b) election and on economic benefit cost of death benefit.
Business Entity makes deductible contribution of $50,000 annually to Restricted Property Trust for 10 years. Assets grow tax‐deferred.
RPT$2,011,494Whole LifePolicy
Death Benefit payable to Participant’s chosen beneficiary if death were to occur during trust funding period. Death benefit equal to $2,627,928 at end of year 10.
If Business Entity fails to make annual contribution, the Restricted Property Trust surrenders the policy and distributes trust corpus to charity.
Male,Age 45
10-Year Plan$350,000 Total Contributions
Ahypothetical exampleforinformationalpurposes.Itisnotintendedtoreflectaspecificproductorpolicy.Policyvaluesshowarerepresentativeofthosefromatypicalhighlyratedcompany.Theassumptionsusedaresubjecttochangeandtheactualresultsmaybemoreorlessfavorable.
Restricted Property Trust (RPT)
RPT$2,011,494Whole LifePolicy
Participant recognizes income on policy cash value in excess of value created by Sec. 83(b) election and economic benefit costs. Tax due is paid directly from the policy’s cash value.
Restricted Property Trust distributes policy to Participant at end of trust period. After distribution and withdrawal for tax payment, the death benefit of $1,135,976 is still in force.
Non‐taxable disbursement of $103,629 to Participant to fund estimated tax cost of trust distribution.
1. Non‐Taxable disbursements to Participant of $950,680.
2. Income Tax‐Free Death Benefit to Beneficiary.
3. Non‐Taxable exchange to other insurance policy.
Individually Controlled Whole Life Policy
Immediate Tax Efficiency• Tax rate = 13.4% vs. 40%• $132,920 Net tax savings• $950,680 supplemental tax‐free income to Participant
• $286,834 income tax‐free Death Benefit
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Restricted Property Trust (RPT)
Restricted Property Trust (RPT)
Business Entity
Participant recognizes income on $15,000 of contribution (making a 83(b) election and on economic benefit cost of death benefit.
Business Entity makes deductible contribution of $50,000 annually to Restricted Property Trust for 10 years. Assets grow tax‐deferred.
RPT$1,286,292Whole LifePolicy
Death Benefit payable to Participant’s chosen beneficiary if death were to occur during trust funding period. Death benefit equal to $1,767,644 at end of year 10.
If Business Entity fails to make annual contribution, the Restricted Property Trust surrenders the policy and distributes trust corpus to charity.
Male,Age 55
10-Year Plan$350,000 Total Contributions
Ahypothetical exampleforinformationalpurposes.Itisnotintendedtoreflectaspecificproductorpolicy.Policyvaluesshowarerepresentativeofthosefromatypicalhighlyratedcompany.Theassumptionsusedaresubjecttochangeandtheactualresultsmaybemoreorlessfavorable.
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Restricted Property Trust (RPT)
RPT$1,286,292Whole LifePolicy
Participant recognizes income on policy cash value in excess of value created by Sec. 83(b) election and economic benefit costs. Tax due is paid directly from the policy’s cash value.
Restricted Property Trust distributes policy to Participant at end of trust period. After distribution and withdrawal for tax payment, the death benefit of $772,510 is still in force.
Non‐taxable disbursement of $98,683 to Participant to fund estimated tax cost of trust distribution.
1. Non‐Taxable disbursements to Participant of $684,420.
2. Income Tax‐Free Death Benefit to Beneficiary.
3. Non‐Taxable exchange to other insurance policy.
Individually Controlled Whole Life Policy
Immediate Tax Efficiency• Tax rate = 14% vs. 40%• $130,198 Net tax savings• $684,420 supplemental tax‐free income to Participant
• $109,408 income tax‐free Death Benefit
Restricted Property Trust (RPT)
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CHARITABLETRUSTS
CharitableTrustPlanning
CHARITABLELEADTRUST
CharitableRemainderUnitrust
CharitableRemainderAnnuityTrust
CHARITABLEREMAINDER
TRUST
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SetUpaCharitableRemainderUnitrust(CRUT)
PharmacyRx,Inc.(CCorporation)
$2,000,000
PaulsetsupaCharitableRemainderUnitrustandgifts45shares(outof100shares)tothetrust.
Paul(owner)100shares
CharitableRemainderUnitrust
45shares(45%)
Paul(owner)55shares(55%)
Paulretains55%majorityownershipincorporation
CRUT:CharitableTaxDeduction
TaxDeduction(@33%)
$112,934
CharitablecontributionisanitemizeddeductiontakenonScheduleA.
CharitableRemainder5.0%Unitrust$900,000
CharitableContribution$342,225
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CRUT:AssetSaleofPharmacy
PharmacyRx,Inc.(CCorporation)
$2,000,000
PharmacyRxreceives$1.1millioninataxablesaleofhis55sharesandistaxedatcorporaterateof39%thanliquidatescorp.andpays18.8%.
CharitableRemainderUnitrustSalePrice:$900K
Gain:$0
PharmacyRx,Inc.SalePrice:$1.1MTax@39%$429,000
Charitabletrustreceives$900,000intax‐freesaleof45sharesofPharmacyRx,Inc.
Bypassthegainon$900,000tosavecorporatetaxesof$351,000(@39%)andanadditional$103,212incapitalgainstaxesuponliquidatingthecorporationfortotaltaxsavingsof$454,212.
[email protected]%$126,148
BUYER
CRUT:IncomeandRemainderBeneficiary
“IncomeInterest”ispaidoutannuallytodonor/other
beneficiaryduringthetermoftrustagreement
Charity
$1,157,741
@5.89%ROR
“RemainderInterest”(i.e.whateverisleftintrust)ispaidtooneormorecharitableorganizationsatendoftrustterm
CharitableRemainder5.0%Unitrust$900,000
Income$45,000
PaulEst.IncomeoverLEof28.5Years=
$1,452,064
ONELIFE
ANNUAL
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CRUT:WealthReplacementTrust
NetIncomeInterestisusedtorecreatethelost
assetvalueforbeneficiariesusinga
WealthReplacementTrust
CharitableRemainder5.0%Unitrust$900,000
WealthReplacementTrust
$1,628,644
$30,000
ANNUAL
Income$45,000
IncomeTaxes(@33%)
BENEFICIARIES
CRUT:WealthReplacementTrustNetIncomeInterestfromCRUTisusedtofundalifeinsurancepolicydesignedtorecreatethegiftmadetothecharitabletrustplusgrowth@5.5%.
BENEFICIARIES
Income$45,000 WealthReplacementTrust
GuaranteedLifeInsurance(onPaulage60,std.health)
$1,628,644
Beneficiariesreceiveatax‐freeinheritancewhichequatestothe$900,000growingat5.5%over28.5yearslessapplicabletaxes.
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AgeofDonor
CharitableDonation
CharitableDeduction
IncomeTaxSavings
60 $900,000 $342,225 $112,934
74 $900,000 $526,563 $173,766
AgeofDonorhasImpactonDeduction
TaxSavingson‐ $
GifttoTrust@33% 112,934
AssetSaletoBuyer@39% 351,000
[email protected]% 103,212
Total 567,146
TaxSavings
LosesNothing!
CHARITABLETRUST
EXITPLANNING:ARealCase
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ExitinganSCorporation(5strategies)
2014TaxLiability
$519,434
Pharmacy
2015TaxLiability
$13,438
YearofAssetSale– 2014
AssetSalePrice $2,125,000
CapitalGainsPortion 1,080,000
AdjustedGrossIncome 2,023,922
ItemizedDeductions 94,515
Less:3%AGILimitation ‐51,566
TaxableIncome $1,980,973
Step#1:ReduceRestrictedCovenant
Sellersaves$52,724
PharmacyPurchasePriceAllocation
Inventory $325,000
FixedAssets 1,000
RestrictedCovenant 719,000
Goodwill 1,080,000
TotalPurchasePrice $2,125,000
PurchasePriceAllocation
RestrictedCovenant 450,000
Goodwill 1,349,000
RestrictedCovenantisreducedby$269,000
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Step#2:DeferStateIncomeTaxPaymentPharmacy2014ItemizedDeduction
StateIncomeTaxPaid $94,515
Less:3%AGIFloor ‐51,566
TotalDeductions 42,949
2015ItemizedDeduction
StateIncomeTaxPaid $92,825
Less:3%AGIFloor ‐0
TotalDeductions 92,825
2014ItemizedDeduction
StateIncomeTaxPaid $1,690
Less:3%AGIFloor ‐1,352
TotalDeductions 338
Step#3:MaximizeIRAContributionsPharmacy
2014IRAContribution
Taxpayer1 $6,500
Taxpayer 2 6,500
TotalDeductions $13,000
TheadditionaltaxsavingsfromtheSEP‐IRAismorethanoffsetbycostofcontributing3%toemployees
2014SEP‐IRA
Taxpayer1 $23,400
Taxpayer 2 6,500
TotalDeductions $29,900
Sellersaves$5,850
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Step#4:ShelterTaxableGainonSale
Sellersaves$77,448
PharmacyPurchasePriceAllocation
TaxableIncome $2,044,599
Deduction* ‐$188,000
AdjustedTaxIncome $1,816,599
InvestmentStrategy
EnergyMasterL.P.Investment $200,000
FirstYearTaxDeduction ‐188,000
ActualCashOutlay@45% $115,400
*Deductionsresultfromintangibledrillingcosts(IDCs),depletionanddepreciationcosts.
Step#5:RothIRAConversion
Sellersaves
$19,000+
PharmacyPurchasePriceAllocation
StateTaxDeduction $92,825
Roth IRAConversion* $92,825
Conversionsubjectto federaltax $0
*TheRothIRAgrowstax‐deferred.Allwithdrawalsinretirementaretax‐free.
*TaxesforaRothIRAconversionmustbepaidfromnon‐IRAfundsforaRothconversiontobebeneficial.Rothconversionsgenerallyarenotappropriateforindividualwhowillliveofftheirretirementincomeinretirement.
10/10/2017
40
EXITPLANNINGForSCorporation
TotalTaxSavings$192,619
1. RestrictedCovenant2. StateTaxDeductionPhase‐out3. MaximizeRetirementAccount4. ShelterTaxableGain5. RothConversion
ThankYouPresentedBy:
IndependentPharmacyConsultingGroup,LLC
LawrenceC.Barrett,CLU,ChFC,AEP®
28601ChagrinBlvd.,Suite300Cleveland,OH44122Tele:216‐591‐2392TollFree:800‐875‐0803,[email protected]
LawrenceC.BarrettisaregisteredrepresentativeofLincolnFinancialAdvisorsCorp.
SecuritiesofferedthroughLincolnFinancialAdvisorsCorp.,abroker‐dealer.MemberSIPC.InvestmentadvisoryservicesofferedthroughSagemarkConsulting,adivisionofLincolnFinancialAdvisors,aregisteredinvestmentadvisor.InsuranceofferedthroughLincolnaffiliatesandotherfinecompanies.
IndependentPharmacyConsultingGroup,LLCisnotanaffiliateofLincolnFinancialAdvisorsCorp.
CRN‐1889908‐090617