Irv Blackman Irv Blackman
Independent Financialservices Professsional

Irv Didn't Invent Taxes, Just 227 Ways to Beat Them, Legally

July 1, 2009

Would you believe that just the basic tax law—the Internal Revenue Code and the regulations—have about 50,000 pages (small print). Complex! Changes abound! Most of all, no logical, organized theme.

Then there’s a constant stream of IRS rulings and case law. No one person can know it all…certainly not the geniuses in Congress that pass the law…nor the IRS, the designated driver to enforce it.

There are three main ways the federal tax law picks your pocket and becomes your legal partner: 1) payroll taxes, 2) income tax, and finally, a huge slice of your wealth via 3) the estate tax. 

The purpose of this article is to show you how to fight back. One day, just for fun, we (four tax guys) started to count the ways to legally get around paying the three taxes listed. We were just getting warmed up, got to 227 and stopped.

Following are five of the dozens of tax-saving areas that come up most often, are not known by most professionals or prevent the biggest loss of your money to the IRS or others. All examples are of real-life taxpayers and readers of this column who have asked for help.

Payroll Taxes

This money-stealing parasite is persistent and expensive: In 2009, $16,404 to the taxman (employer and employee share) on your first $106,800 of earnings. That’s a scandalous 9.76 percent. Earnings above $106,800 (there is no limit) pay an additional 2.9 percent. Here are the three most common lose-payroll-taxes-to-the-IRS mistakes: 

  1. Joe, the owner of an S corporation, taxes a large salary (often $500,000 or more) and takes a huge bonus at year end to bring profits down. A dividend (tax-free if you are an S corporation) instead of compensation would save a bundle of unnecessary payroll taxes and cost not one penny more in income taxes. 
  2. The spouse of the owner takes a salary, yet doesn’t work or is overpaid. It is much better taxwise to give them a gift. 
  3. Operating a business as an LLC, which makes all income to owner(s) subject to payroll taxes…a no, no. 

We have several different ways to save $10,000 or more per year on payroll taxes.

Asset Protection

In a heartbeat, your family wealth, including your business, can be depleted—even destroyed—by a lawsuit. 

For your business, the core strategy is to keep your business thin: Only keep those assets, typically necessary cash, inventory and receivables, needed for operations in your business. Here are the basics substrategies:
  1. Elect S corporation status; 
  2. Any new real estate or expensive equipment (include the little stuff if it adds up) should be owned by you (via separate LLCs) and leased to your operating company. 
  3. Never own delivery vehicles in your operating company. Put the vehicles into a separate corporation, an LLC or just put your best entrepreneur-type driver in business and rent your old vehicles.

Life Insurance, Whether Owned by You or Your Spouse or Kids, Your Business or Some Kind of Trust

You are about to be delighted by what you read. Sorry, some of you will be horrified.

Part of every estate plan we do is to have an insurance expert analyze all existing life insurance policies on you, your spouse and fellow business owners (stockholders or partners). Let’s start with the three critical issues concerning life insurance: 

  1. Premium cost  
  2. Death benefit 
  3. Tax (usually the estate tax) due at death on the benefit.

Over the 45-plus years that I have dedicated my practice to estate planning, we (an insurance expert, myself and, when necessary, a lawyer with insurance expertise) have looked at more than 1000 insurance portfolios. Only four times did we find everything perfect. Otherwise, (except when the insured was no longer insurable because of health issues), we were able to modify the insurance plans and reduce premiums (on average about $30,000 per year) or increase the death benefit (from $500,000 to as high as $11 million) without additional premium costs.

  1. Fact: A cash-surrender value over $200,000 on a policy that is nine years old or older can be single life or second-to-die.
    Significantly more death benefit for same premium cost, or significantly reduced premium cost for same death benefit.
  2. Fact: You (the owner) are 55 years old (or older), worth $5 million (or more), and have insurance on your life only. 
    Result: You are wasting premium dollars…second-to-die coverage with your spouse will typically give you the same death benefit for about 35 percent less premium cost.
  3. Fact: You have $400,000 (or more) in a qualified plan (probably a 401(k) or IRA), which is subject to a double tax (income and estate) of up to 73 percent to the IRS. 
    Result: On average, you can turn every $270,000 of after-tax dollars into $3 million to $5 million (tax-free), depending on your age and health—works for second-to-die or single life.
  4. Fact: You are worth $10 million to $40 million (or more). 
    You can buy $10 to $40 million of single life or second-to-die coverage with no out-of-pocket premium cost.

A simple fact: More than 99 percent of the time a second opinion of your insurance situation, followed by proper planning, will save you significant premium dollars, increase the death benefit and/or make the insurance proceeds tax free. Be smart and get a second opinion.

Your Business and Business Kids (Essentially Business Succession)

Here are the goals the typical business owner with kids in the business gives me:

  1. Transfer the business to my kid(s) so my kid(s) and I don’t get killed by taxes.
  2. Show me how to treat my nonbusiness kids fairly.
  3. Make sure I stay in control of my business for as long as I live.
  4. Make sure the company stock stays in the family (never goes to a kid’s ex-spouse).

Estate Plan

A proper estate plan is actually two plans: a lifetime plan and a death plan. The plans are designed to cover every significant tax-saving possibility (many more than 227 s) from the minute the lifetime plan is created until you die (covered by the death plan) and even after you’re gone.

Want to learn more? Browse Or in a hurry, call Irv at 847/674-5295. MF

Industry-Related Terms: Core, Die, Transfer, Case
View Glossary of Metalforming Terms

Technologies: Bending


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