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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
29 March 2000
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What does a Financial Planner have to know about stock options; Seniors have won, next are the married, but what happened to the Small Business/Home Business owners?

1. Stock Options are king these days but so is cash.

The financlal planning community is flooded with clients who have done well with stock options, and with salary increases of 25% or more we are told. Some investors have been doing well also. Both need quality tax advice. The stock market, especially in the Internet stocks, is a big gamble, and recently the swings have been significant. Thus the L. A. Times article about ArtistDirect, Inc. is very interesting to say the least.

Too many ArtistDirect shares were issued, either in the initial IPO or by way of stock options to employees and artists (?) [MP3.com was one of the first to offer stock options to outside artists and its IPO was in the $20's, its high was in the $120+ and now it is back to the $20's] and now it and its lawyers have all hell to pay. Here come the litigators.

Life was simple before the New Economy and the Internet hit the stock market. As for executive salaries, the times have never been better. Does anyone know if they have IRC Section 1202 stock? Does anyone know that they may have an IRC Section 83(b) Election situation, which must be done within 30 days from receipt of the stock option? Does anyone know the difference between a Qualified and Non Qualified Stock Option, and the tax issues related to these hot items for all concerned?

2. The House has passed and sent the Seniors Legislation to the President, the Senate is about to tackle the Marriage Penalty, and the Small Business Tax Cut is in a Conference Committee.

Seniors between 65 and 70 will be able to earn more without losing their social security benefits, retroactive to January 1, 2000. That will make Las Vegas and other retirement communities real happy.

The Marriage Penalty is coming next, and the Small Business Tax Cuts are in the wings. All of these tax changes must be 'scored' by the Joint Committee on Taxation and their tax expenditure cost for the next five and ten years must be determined for budget purposes. The Marriage Penalty is a big number, like $240B over ten years. The Seniors' Social Security Tax Benefit is around the low $10B's, and the Small Business Tax Cuts are in the $100B+ range, add these all up and major tax changes are on the table.

Distressed Communities, by the way, are in the $5B range for five years.

Will the President Veto the Marriage Penalty Bill, the Small Business Tax Cut Bill, or the Distressed Communities Bill? Our prediction is that compromises are on the table for all three bills with the later the least controversial and the least costly.

The sleeper in the later bill is proposed amendments to IRC Section 1044, which allows roll over of ALL market gains, up to $750,000 [life time] for individuals and $2,000,000 [life time] for corporations if reinvested into Specialized Small Business Investment Companies ['SSBICs'] within 180 days.

This, to the financial planning community, will be a hot topic to say the least. What are SSBICs, how do they operate or invest, and where to find them will be the topic for this year, since that amendment could be effective for all gains after enactment.

Jim Schneider, LL.M.


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