New Law, Strategies and Info to Make You Wealthy or WealthierNovember 1, 2009
Knowledge is power. The right kind of new knowledge—if you know what to do with it—is and als will be an economic powerhouse for you and your business.
New Estate Tax Law is Coming
Let’s start with some new tax laws Congress is likely to pass before 2009 ends. You must divide these new-tax-law candidates into two distinct groups: the good guys and the bad guys.
First the good guys (clearly great news for the how-to-keep-it fans). The current law (for 2009 only) exempts your first $3.5 million of net worth from the estate tax ($7 million for married folks) with the top rate at 45 percent—the rate for 2010 is zero (no tax, even if you are worth a zillion dollars) —and then starting in 2011 a puny $1 million exemption ($2 million if married) and a top rate of 55 percent.
Two happy new versions are pending in Congress to replace the current estate tax law: 1) The budget outline passed by the House, which keeps the 2009 exemption ($3.5 million) and top rate (45 percent). 2) Even better is the Senate’s budget outline that raises the exemption to $5 million ($10 million for married couples) and lowers the top rate to 35 percent. Applause!
Place your bets. I’ll bet the farm that we wind up with at least the House version. A House/Senate compromise (more than $3.5 million) could happen.
More good stuff: The gift tax exemption (currently at $1 million) will probably soar to $3.5 million.
You won’t like the bad-guy possibilities: 1) Goodbye to a good old friend, LIFO (if terminated by new law, you’ll probably have five to six years to pay the income tax due). 2) The Washington heads are seriously talking about eliminating the long-standing discount rules (typically in the 35- to 40-percent range) when valuing a closely held business for tax purposes. A terrible and extremely costly tax change.
My advice: If you intend to transfer your business to your kids, don’t wait. Take action now.
Now let’s take a look at two “How to make it” ideas. Each idea sounds too good to be true, yet each is a rock-solid concept.
Captive Insurance Companies (Captive)
As a business owner, you must carry property and casualty insurance (P&C). Every year you pay your premium dollars (say $400,000) for your usual coverage: workman’s compensation, fire, theft, liability, vehicles and other risks. (Healthcare costs are a separate expense.)
Suppose your claims for the year are only $100,000. Sorry, but your insurance carrier keeps the $300,000 excess. Worse yet, it (the premiums you paid significantly exceed your claims) probably happens year after year. But hey, can’t complain. That’s the the P&C game is played. Only in a rare year, when your claims exceed premiums paid, does your insurance carrier become a welcome friend.