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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
13 July 2000
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When is a house a home-based business; What is 1099.com; Let the good times roll.

1. Del Mar house price goes through the roof at $25M.

Del Mar, California is a beautiful seaside resort town next to San Diego's High Tech world, and has always been very pricy but at $25M, WOW! Paid for with all cash by a high tech entrepneur says the front page article in today's The San Diego Union. [You will note that today's edition is not on-line, have to wait till tomorrow] Hopefully, for this person the Senate may pass Death Tax Repeal tonight and hope he or his then spouse lives to January 1, 2010.

What if he does not make it? Is he one of those worth $100M that we read all about from his Dot-Com startup after August 1993? Where did he get the cash to make the $25M purchase [$5M over asking price], from the sale of some of his Dot-Com stock we believe. How is his life insurance picture looking these days.

How about his employees, who can only afford a track home for $1M in a gated community in Carmel Valley? What does their estate planning picture look like? We suggest that the following buried in the New York Times is a must reading, the Democrats may have the better plan, effective January 1, 2001 [why not 01/01/00?]

Moreover we suggest that a home-based business, just like the small family farm, may qualify for the small business exemption referred to in estate tax rules, and with a proposed $4M exemption this may be a popular tax planning move for income and estate tax reasons. By the way, if it was our client who wanted to buy the $25M for all cash we may have suggested IRC Section 1045 as the way to go. [What are the tax consequences to the seller of the $25M home? The $500,000 residential gain exclusion does not seem to be to useful here.]

2. What is 1099.com?

Our good friend Peter Economy sent us an e-mail which referred to 1099.com and off we went into the never, never land of the internet. Go see it and have fun, it is a very interesting Web site for the independents of the world; and they are encouraging incorporation, we agree.

3. Retirement Planning is in.

While the learned ones are debating for 14 hours today and night the pros and cons of Death Tax Repeal, the real action is going on in the House Ways and Means Committee on the H.R. ____, the "Comprehensive Retirement Security and Pension Reform Act." A summary of the various provisions, most of which start next year has been prepared by the Joint Committee on Taxation and is must reading. One of the many pro taxpayer provisions is the loans to participants from S Corp. and Self-Employed Retirement Plans beginning next year. Additional funding for those over 50 and woman, and other provisions [$160,000 annual retirement benefit at age 62] for upfront loading are going to be very attractive.

Suppose someone was able to take his non qualified stock option and exercise it for restricted stock, and then was able to contribute that to a retirement plan [his company then goes public and the stock is now worth $2.5M], and then that person was able to borrow out some of the proceeds for his home-based business, business premises and furnishings included. Let the good times roll.

Jim Schneider, LL.M.

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