Oxenham, a senior legal advisor for the National Foundation for Tax Planning & Asset Protection, based in Provo, Utah, said the first thing to do is set up a business as a corporation, allowing owners to take advantage of tax breaks that favor corporations.
Unfortunately, many people choose to own a business in their own name - called proprietary/joint tenancy - where people pay "maximum taxes and have no lawsuit protection," Oxenham said.
He added that the most common way to be in business is to own and operate a limited liability company, which includes limited tax deductions, unknown lawsuit protection, and is easy to set up. Oxenham warned, however, that 14 states do not recognize limited liability companies.
He concluded that an S corporation or C corporation business offers the best tax deductions, although neither carries any lawsuit protection. "If you are paying taxes, you should ask your accountant to look into setting you up as a C corporation," he said.
Some of the tax deductions in a C corporation include medical, dental, and life insurance, automobiles/trucks, and equipment. Oxenham told QSC members that the time is right to take advantage of IRS rule 179, which allows up to $105,000 in deductions. Why now? "The law goes away in January 2006," Oxenham explained.
He also said that another advantage of having a C corporation business is that many are not audited by the IRS. "It takes too much time," Oxenham said.
He said there is some "smart planning" that should go into a C corporation. His suggestions included incorporating in states where taxes are lowest, i.e., Nevada and Wyoming. Corporations should never own the business assets, Oxenham maintains.
Avoiding Lawsuits
Oxenham listed five of the most common lawsuits that business owners face: premise, employee, discrimination, harassment, and alcohol-related. He also said that fewer than one in 10,000 attorneys specialize in asset protection, which business owners need. Oxenham noted that the average lawsuit costs $22,000 to file and $141,000 to win.But there are ways to protect against lawsuits, he said. "If you can make it difficult or impossible for an attorney to sue you, he will move on to the next case."
He said that limited partnerships - where none of the partners has "control" of the partnership - are the best way to protect against lawsuits.
He advised QSC members to study IRC 704, which has been in effect since 1916. "It [IRC 704] has been challenged in courts in all 50 states and prevailed," Oxenham said. "It offers tax advantages and absolute lawsuit protection."
He also recommended a Family Limited Partnership (FLP), which he said should be set up "when you own something of value."
Estate Planning
Oxenham said that one of the best ways to protect personal assets is by starting and maintaining an "irrevocable living trust," which can be as easy as filling out the form and funding the trust. He is against using wills to divide up personal/business property.Wills are "attorney welfare - probate designed to stick it to your family while the attorneys get rich," Oxenham said. "And, the IRS said that while you live you should pay as much taxes as you can and when you die, give the money back because you don't need it anymore. "Living trusts get probate and attorneys out of your life."
He also mentioned an IRS code that he said is "used by many wealthy people who don't want to give away their money." He was referring to IRS Code 664(d), which defines a Charitable Remainder Trust (CRT).
According to Oxenham, a valid charity must be named in the CRT, but nothing has to be given to the charity as long as the people who formed the CRT are alive. In the case of a husband-wife partnership, for example, the CRT pays out to the charity only upon the death of the second individual.
"Almost everyone in this room is one bad decision by a judge from losing everything they own," Oxenham concluded. "We struggle like crazy to get what we have - and we struggle like crazy to keep what we have."
Publication date: 04/25/2005
Report Abusive Comment