I had planned on discussing some terrific tax saving strategies using websites in today’s e-mail, however, there is breaking news concerning Estate Taxes that warrants immediate discussion. Because many of you are not concerned with estate taxes I decided to include both subjects in today’s unusually long e-mail. If you would like to skip the Estate Tax news please skip down to website tax savings strategies 

ESTATE TAX ALERT

The Obama Administration and Congress are continuing to keep their promise of “change” at a break neck pace. Every day we are learning of new proposals. A great number of these changes will affect your taxes, your business and your ability to grow what wealth you have left.  Many of these proposals may never be enacted into law and if they were there is not much we can do ahead of time to prepare. However, some proposals do allow for us to take action now in order to avoid or reduce their costly impact.     

HR 436, Certain Estate Tax Relief Act of 2009 is one such proposal. Using the word “Certain” in the name of this bill is curious. I guess the name was given because in reviewing the bill we are just not “certain” how this is any kind of tax relief. HR 436 will re-establish the federal estate tax exemption at $3,500,000, and set the tax rate for estates exceeding that amount at 45% (50% for estates between $10 million and $23.5 million). So far this is not much of a change unless you consider that in 2010 the estate tax was set to go away completely.   

The BIG change is what they are proposing to do to Family Limited Partnerships. The Family Limited Partnership is a widely used estate tax planning tool. I will not discuss how and why they work here because if you do not have one already it may be too late to start one now. The proposed bill will eliminate discounts on the value of the limited partnership interests that are gifted to family members. This change will effectively eradicate any estate tax advantages for using a Family Limited Partnership.

In draft form the bill is not retroactive, therefore the prohibition on discounts is only effective after it has been passed and signed. For that reason it may not be too late to do some significant gifting now. However, at this stage the bill can easily be changed and made retroactive. Still, it may make sense to consider making that significant gift anyway. By “significant gift” I mean using your life-time gift exclusion not merely the $12,000 annual gift exclusion.

Making the gift now will not only allow you to discount the value of the Limited Partnership interests, but in today’s market you may be able to take advantage of the lower fair market value of the underlying assets. For example, if the Family Limited Partnership assets are mostly stocks or real estate the current fair market value of those assets are low. If you gift now the appreciation of those assets will take place outside of your estate. If you wait to do your gifting the asset appreciation will occur inside your estate thus you will have even more to gift later and you must make the gift without the benefit of the discount.

To discuss this further please contact our office to schedule a consultation at 480- 948-9510. If you are a quarterly or monthly monitoring client we will discuss this with you during our next meeting.

Our philosophy has always been that you should not spend money on something you don’t really need just because “it’s deductible”, but instead look at your current spending and find a way to get tax advantages for something you already do. The best way to accomplish this is to start a business around something that you enjoy and are already spending money on. For example, many of you have heard our fly fishing story, where we suggested creating a fly fishing business for a fly fishing enthusiast. (If you want to learn more check out our course “The Three Pronged Attack on Taxes”.) The most important factor in this strategy is that the business must be “real business”. There are IRS guidelines concerning what constitutes a “real business” with a profit motive, so you will want to discuss your plans with one of our tax strategists.  

An online business is a great option for this strategy! Online businesses are quick to setup, inexpensive to get started and your market place is worldwide. I am specifically thinking about an online business used to advertise to a particular segment of internet users (think “fly fishermen” for example). The great thing about this type of business is that not only does it allow you to deduct expenses relating to activities you like but it also allows you (if done correctly) to generate income 24/7! This strategy is covered very thoroughly in “The Three Pronged Attack on Taxes”. To make this business work you need to create and launch a website, get people to come to the website and attracting advertising and affiliate program revenue. Up until now you were on your own for those important pieces. Now we can now introduce you to the perfect person to help you get these crucial actions done.

Adam O’Connor has been a client of ours for many years. During that time Adam has been building websites targeting certain niches on the internet. Once the websites are launched he continually works on them to be sure they rank high on search engines and continually generate advertising and affiliate program revenue. Funny, that’s just what our new tax saving websites need to do! 

Next week we will discuss another tax saving strategy using websites. This one will allow you to take advantage of the passive losses many of us accumulate year after year because we have not been able to deduct them. This website strategy to use   passive losses requires the same set of skills as the deduction website strategy.

Adam has agreed to do a free webinar for our members covering all you need to know as far as websites are concerned to implement both strategies. The webinar is called “Websites for Income and Tax Savings”. The webinar will be held on Wednesday, April 1 at 3:00 Pacific Time. The webinar will also cover next week’s topic