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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
18 March 2000
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Newsletter delivery woes and bright spots; The Stock Market Keeps Growing; IPO's Are Up; and my taxes are too high

Newsletter delivery woes and bright spots

Newsletter delivery at Bigstep.com was out again yesterday and today it going out by alternative means, by way of Boulder Colorado, which is second behind San Jose as the Venture Capital of the World says The N.Y. Times. Austin Texas is third. The same NYT article says it all, the Web and the New Economy can change the neighborhood, from a ghost town five years ago to 430 DOT-COM Companies and 50,000 high paying jobs.

We have followed the South by Southwest Program which started in a couple of college bars five years ago and now is 430 DOT-COM Companies and 50,000, that is the New Economy. Grin and bear it downtown Los Angeles and San Diego your turn is coming next, after Washington, D.C. Give us 'ZERO CAPITAL GAINS Zones' and let the games begin. You heard that first here.

Three things happened yesterday, we got an e-mail from an old college friend, the Wall Street Journal on page 1 announced that House Speaker J. Dennis Hastert and President Clinton had reach a deal on an antipoverty program and it will be announced within 10 days, and our media friends keep hyping our Newsletter [we hit an all time high of 1675 hits the other day]

For all those that ask, IRC Section 1044 is coming online at $750,000 market gains deferral [$50,000 today] and 180 day reinvestment period, effective after the President signs the Bill. More on that later...

1. The Stock Market is alive and well; trading profits are up

The key issues facing investors in the coming months will be how to take profits out of the stock market without paying ordinary or long term capital gains, or if the gains are in retirement plans [non taxable] how can I get the use of that money, without paying tax. Moreover, the issue of estate taxes, a.k.a. the grim reaper keeps raising its ugly head.

We predict the following:

  • IRC Section 1044 will be one of the most looked at tax sections by tax advisors
  • Loans from Qualified Retirement Plans, including Self-Employment Plans will become real popular; and
  • Every family will have a Family Limited Partnership

In addition IRC Sections 1400A to 1400G will become more important because they will provide the key to ZERO Capital Gains from the sale of Enterprise Zone Businesses, as defined under IRC Section 1397B, which includes real estate developments.

History has a way of repeating itself, and investment monies have a way of flowing between the stock market and real estate. If that real estate can be sold for cash, and the profits are not subject to capital gains tax, after five years, then that is going to be real attractive. If that real estate is a home-based business, then maybe the home and the business are tax free after five years.

2. San Diego has become a hot IPO community we have been told

Yesterday the San Diego Union Tribune said that ten [10] IPO's are in the pipeline [the legal, accounting and investment bankers are doing well these days], which is happening in many other communities.

What about the investors who bought in at the original formation of these companies? They apparently have hit gold, and may be selling some shares in the near future. Have they heard of IRC Section 1045? or IRC Section 1044, our guess is that they have not. How do we know? ecause we ask CPA's all the time, we read the newspapers and investment magazines and these tax deferral techniques are not there. If you have found an article on these subjects drop us a line.

3. My taxes are to high what do I do?

The key to tax savings is to divide income amongst related entities [taxsavings begins at home] or family members. Forming a corporation with a fiscal year is the beginning. Forming a corporation and electing S Corp. status does not cut it. How does a fiscal year work, very simple, salaries are taxable to employees, loans to employees are not. If properly structured long term loans to employees and/or related entities have been upheld but make sure we have notes, with proper interest rate, and make those interest payments.

Jim Schneider, LL.M.

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