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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
19 August 2000
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Who has been left behind; Who are the "rich ones" we hear about; Getting heard.

1. We want to take care of those left behind.

Peace and prosperity is the message, with the subtitle, we can not leave anyone behind, or to say it another way let everyone have a seat at the table.

"...Thirty-five thousand people, the equivalent of a fair-sized town, moved here last year alone. And in the last five years, Austin has produced or acquired 17,000 new millionaires.. ..." Garber and I took a driving tour of Austin when we met for the second time. As we nosed under an elevated highway, we came face to face with a modern-looking fortress of red brick and glass. "That's Vignette," he said, tapping on the window. He helped start Vignette four and a half years ago; today it is the largest e- business software firm in the world. "Vignette has created about $3 billion worth of employee wealth," he noted with pride. Garber himself is 33, and his net worth is somewhere upward of $200 million. On Garber's side of town, brand-new mansions have spread as rapidly as cedar trees across the rolling limestone hills. The recent history of Austin is written on those hills. For a generation, the definition of a political fight was a developer wrestling with environmentalists over how fast the city should grow. Those fights seem almost quaint compared with what's on the horizon..." An excerpt from "Austin We Have A Problem" in this Sunday's New York Times Magazine.

This could have been a story on Silicon Valley, Seattle, San Francisco, Denver, and may be even San Diego, but where is the rest of the country going, that is the issue, and how best to get there. Whose vision is the best.

From our point of view, if the Internet/New Economy has proven anything, it is that the free market system, may not always work, but it sure creates alot of action, and legal fees.

Less government, not more, less restrictions, not more, and keep the taxman out of the picture. As someone once said, help is on its way. S. 2936 "Creating New Markets and Empowering America Act of 2000" in Section 408 states:


(a) IN GENERAL- Section 1397C(d)(4) (relating to treatment of business holding intangibles) is amended--

(1) by striking `development or', and

(2) by inserting `unless a substantial portion of the development with respect to such intangibles occurs within any empowerment zone' after `license'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

We commend this Bill for your review and consider what the possibilities are of bringing all this action into Empowerment Zones, Enterprise Communities, and Renewal Communities, all of which will have the benefit of Section 408.

2. Who are the rich, the 1% we keep hearing about, and the "Marriage Penalty."

The Marriage Penalty is a hot topic, why make it more expensive for a couple to get married than to live together in 'sin'. Is doubling the income that qualifies for the 15% tax bracket a throw away for the rich, albeit, about $1,700 per couple at the maximum? Lets get serious, and start talking about real issues, like deductibility of health insurance, increased IRC Section 179 deductions, and raising the death tax exclusion to several million for starters. The Vice President proposed this, if I heard him correctly, but we have not seen it until his speech on Thursday night. Are the rich, those that earn over $55,000 combined taxable income, we doubt it, but that is what we heard, and the cheers were pretty loud.

3. How to be heard is the question, and a Web site does not cut it.

If you follow the rules, and start trying to raise capital, you are not allowed to say very much. But that is changing, and the Angel Camps, Startup Camps, and Web Sites for new ventures and capital raising are coming on line everyday.

IF we are correct that many new Austin corporations qualified for IRC Section 1202 status, at one point [stock issued after August 1993] and if we are correct about the number of "Austin Millionaires" then herein lies an opportunity to bring this capital, tax free into play. Unfortunately, many of those "Austin Millionaires" are locked up with stock options, most of which are subject to ordinary income. The same in Dallas, San Francisco, Denver, and other places.

The final answer is to get these employee 'equity kickers' into a potential capital gains situation, which then may be subject to a roll over; that means issuing Restricted Stock, or converting the stock options into Restricted Stock, or better yet into an investment into an Empowerment Zone or Enterprise Community Investment. More on these subjects will be part of the upcoming Taxman86 Seminar on Equity Kickers.

Jim Schneider, LL.M.

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