Lawrence-Barrett-Taxes - NCPA · 3. Learn the benefits of owning real estate through depreciation, cost segregation, like‐kind exchange, and passive activity losses. 4. Understand

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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.



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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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.


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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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


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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


Income$45,000

PaulEst.IncomeoverLEof28.5Years=

$1,452,064

ONELIFE

ANNUAL

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CRUT:WealthReplacementTrust

NetIncomeInterestisusedtorecreatethelost

assetvalueforbeneficiariesusinga

WealthReplacementTrust


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


Less:3%AGIFloor ‐0

TotalDeductions 92,825

2014ItemizedDeduction


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


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+


StateTaxDeduction $92,825

Roth IRAConversion* $92,825

Conversionsubjectto federaltax $0

*TheRothIRAgrowstax‐deferred.Allwithdrawalsinretirementaretax‐free.

*TaxesforaRothIRAconversionmustbepaidfromnon‐IRAfundsforaRothconversiontobebeneficial.Rothconversionsgenerallyarenotappropriateforindividualwhowillliveofftheirretirementincomeinretirement.

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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