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Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.
The problem we all face investment wise is the current low return on low risk investments. Can you give me some idea of how much you are talking about & how old are you & are you married, children (ages), and what type of investment horizon are you looking at in terms of when you might need the money?
I don't know if you are talking about trying to avoid taxes on the liquidation of your business, or what; but an annuity won't accomplish that if that's your objective.
I am actually asking for a client of mine. approx. 700K in cash from business. Widowed. has 4 children . two of whom will not be included in the will. He is 62. He wants to avoid tax on taking this money out from his business liquidation.
Unless he's liquidating real estate & wants to do an exchange for other real estate and not take cash, he's got an objective that can't be achieved.
A SEP or any other investment tools won't work. He may qualify for life insurance. Is that actually an option?
The extent of his tax on the business liquidation will depend upon how his business is currently structured; what his tax basis is in the business & what type of earnings have been retained in the business if it is a "C" corp.
The business is a C corp. not sure on his tax basis. The money that is in the corp has already been taxed once.
Life insurance won't shelter the gain from the liquidation; nothing will. What type of business is being liquidated and how is it currently organized?
oil and gas supply business. he does own some leases with mineral rights. He is the only employee at this time. The business will be completely liquidated by year end.
what does he do with the cash?
The fact that he has retained earnings is the problem. That's the disadvantage of a "C" corporation & is why everyone made "S" Corporation elections many years ago when the law changed & the so-called "General Utilities" doctrine was repealed.
Doesn't he have a retirement plan?
The cash, a good chunk will go to Uncle Sam the way he's got his business structured.
What is your role in this operation?
the business has been his retirement plan. should he transfer cash to an llc?
Wasn't there any tax planning done before he embarked on this liquidation?
i am working with his cpa as well.
not from what I understand. i was just made aware of this situation this week.
So, what's his CPA suggest, he's the one who would know how the corporation is structured and what the situation is with respect to the corporate balance sheet, retained earnings, etc.
should he retain the c corp and tax plan over the next few years on his own? Thats why I was thinking about a Sep.
CPA is stumped too.
If he's got 700K & no retirement plan, which would have allowed him to put the money away & obtain a tax deduction for the contributions, somebody wasn't doing their job.
I thought you said a SEP won't work?
Has he been taking a decent salary?
In fairness to the current cpa, I don't know how long he has been his client. Thats why I was contacted to see if there were any other options.
The best thing he can do with the greatest & best (quickest) tax benefits is to establish a "Defined Benefit Plan", assuming he doesn't have any employees.
Yes, I think he has been taking a salary. has about 80-100k annual income for living.
How old is this guy?
Something has to be done quickly as once his operations stop, he's have potential Personal Holding Company tax problems.
No. Deferred compensation won't work;
Why is he liquidating?
What is your suggested plan?
Establish a Defined Benefit Plan; increase his current salary;
How old/experienced is his "new" CPA?
He is 52 has been doing taxes for 25 years.
Well, this is pretty basic stuff that I am suggesting for a situation like this.
Where are you located in Oklahoma?
ok. thanks. I appreciate all your help.
Is that anywhere near Oklahoma City?
between okc and tulsa
How far from OKC in miles?
I'm on the east coast so I have no clue.
thanks again. you have been helpful.
OK, here's an idea for you that will guarantee the best possible result
We don't normally make recommendations, but this is equivalent to an emergency
What I would normally tell you is to use the Oklahoma Society of CPAs website to locate a CPA who specializes in these type of situations; however, in this case you have a guy in or near OKC that can help; either you or his CPA 'ought to call a CPA named Mark Weinstein; I don't have his contact info but you can either get it from the information or from the Ok Soc of CPA's website or the Board of Public Accountancy;
His CPA could call him for a consutation
ok I will have him do that. thanks again.