Taxes: 227 ways to beat ‘em

Would you believe 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 tax law… or the IRS that is the designated driver to enforce it.

There are three main ways the federal tax law picks your pocket and becomes your legal partner: first, by taking a portion of your income in two ways … (1) payroll taxes and (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 simply 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 asked for help.

A. 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 salary (almost always in excess of $106,800) and then takes a huge bonus at year end (to bring profits down) … not smart. 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) Wives (and often moms) of the owner taking a salary (either don’t work or way overpaid). Much better taxwise to give ‘em a gift and avoid those awful payroll taxes. (3) Operating a business as an LLC, which makes all income to owner(s) subject to payroll taxes … a no, no. Fortunately, there is a way out of this payroll tax trap … talk to your accountant.

A check of our consulting files over the past three years reveals 11 different ways to save $10,000 or more per year on payroll taxes per reader/client.

B. Asset Protection. In a heartbeat your family wealth (including your business) can be depleted — even destroyed — by a law suit.

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 sub-strategies: (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, I mean never, own delivery vehicles in your operating company. Put the vehicles into a separate corporation, LLC or just put your best entrepreneur-type driver in business and rent your old vehicles.

The sad fact is … we can’t protect the assets inside of your operating company. That’s why the above precautions. But we can protect you (and your spouse). We do it automatically, without additional cost, as part of your estate plan. All of your significant assets are simply retitled using typical lifetime planning documents — like a family limited partnership, LLCs and appropriate trusts — to protect your assets.

C. 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) the death benefit and (3) the tax (usually the estate tax) due at death on the benefit.

Over the 45-plus years that I have dedicated my practice to the estate planning area, we (me, an insurance expert and, when necessary, a lawyer with insurance expertise) have looked at over 1,000 insurance portfolios. Only four times did we find everything perfect. All the rest of the times (except when the insured was no longer insurable because of health issues), we were able to modify the insurance plans and save 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. Following are the most common situations that always delight our clients: (if the FACTS fit or are close to your situation, make sure to read the RESULTS).

1. Facts: A cash surrender value over $200,000 on a policy that is 9 years old or older … can be single life or second-to-die. (Result: Significantly more death benefit for same premium cost or significantly reduced premium cost for same death benefit).

2. Facts: You (the husband) 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 wife will typically give you the same death benefit for about 35 percent less premium cost.)

3. Facts: You have $400,000 (or more) in a qualified plan (probably a 401(k) or IRA), which is subject to a double tax (income & 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. Facts: You are worth $10 million to $40 million (or more). (Result: You can buy $10 to $40 million of [single life or second-to-die] coverage with no out of pocket premium cost). How? ... Look into premium financing.

A simple fact: Over 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. Get a second opinion.

D. Your business and your 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 I and my kid(s) 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 (if one of your kids gets divorced, his/her stock never goes to the kid’s ex-spouse).

Every one of the above goals is easily accomplished. We have done it hundreds of times. And best of all, your business can be transferred tax-free: No income tax, gift tax or estate tax for the owner or the kids.

E. 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 ways) … from the minute your lifetime plan is created until you get hit by the final bus (covered by the death plan) … and yes, even after you’re gone.

The above is only the tip of the iceberg in don’t-lose-taxes-to-the-IRS planning. Want to learn more? ... Browse my Web site: ... Or in a hurry, call me (Irv) at (847) 674-5295.

Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection. E-mail him at or call 417-9732. His Web site is

© 2010 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

  • Discuss
  • Print

Comments » 0

Be the first to post a comment!

Share your thoughts

Comments are the sole responsibility of the person posting them. You agree not to post comments that are off topic, defamatory, obscene, abusive, threatening or an invasion of privacy. Violators may be banned. Click here for our full user agreement.

Comments can be shared on Facebook and Yahoo!. Add both options by connecting your profiles.