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In a message dated 98-05-29 16:46:55 EDT, rraff@xxxxxxxxx writes:
<< Subj: Re: An idea to beat the tax man
Date: 98-05-29 16:46:55 EDT
From: rraff@xxxxxxxxx (Raymond Raffurty)
clarkmj wrote:
> I was just sitting here doing some work on my IRA and an idea hit me on
> how to beat the tax man. Please send any comments to me. The idea being
> to use all your accounts to generate as much tax free income into your
> IRA as possible. Assume $500,000 trading capitalCurrent IRA $5000 Here is
> the plan.1. Form a corporation and issue 500000 $1 non dividend paying
> share to yourself. Stipulate in the articles of incorporation that as
> CEO, your room, board, car and other expenses will be pick-up by the
> corporation. 2. Declare that the corporation will sell 5000 dividend
> paying shares. 3. Sell the 5000 shares to your IRA. 4. Do business as
> usual. Easier to deduct expenses. Pay yourself rent, etc... 5. At the
> end of the trading year total up the net revenue and issue a dividend to
> reduce revenue to zero. If I understand corporate law correctly, you
> would only owe corporate income tax on any income which whould net out to
> be zero because of the dividend, therefore no tax. 6. Your IRA then
> grows based on your ROR on $505,000 vs. $5000 Any idea on why this will
> or will not work. ThanksMike Clark
>
> Hi Mike,
>
> A far better way to handle this would be to establish the
> corporation as described. Then set up a legal 401k plan with generous
> bennifits to you. As you may know, you can contribute more to a 401k
> than an IRA, also your "corporation" can contribute matching funds, all
> tax free. You could use these funds to diversify your portfolio.
>
> Good luck and good trading,
> Ray Raffurty
>>
YOUR TAX ADVISER WILL PROBABLY TELL YOU THAT A CORPORATE QUALIFIED PENSION
PLAN CALLED "DEFINED BENEFIT PLAN" MAY GIVE YOUR CORPORATION MORE TAX
DEDUCTIONS THAN A 401(K) PLAN UNDER NORMAL SITUATIONS. THE AMOUNT CONTRIBUTED
BY YOUR CORPORATION INTO YOUR Q PENSION PLAN ALSO ACCUMULATES INCOME GENERATED
THERE TAX-DEFERRED.
SINCERELY,
WILLIAM W
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