Sheltering Solutions That Build Business Value and Personal Wealth

Business owners and executives understand the painful truth: taxes often eat up nearly 50% of their high-earner compensation. Once compensation is paid, a short list of deductions, losses, and credits are the only way to lessen the tax bite.

This “everyone for themselves” approach to tax reduction has limited benefits. There is a better way. Overall, a pivot to three sheltering can deliver meaningful enterprise and personal benefits. These three sheltering solutions include:

1. Sheltering Income before compensation is recognized via qualified profit sharing, nonqualified deferred compensation or LTIP programs.
2. Sheltering Earnings on investments via temporary or permanent deferral via Roth 401(k), 162 bonuses or Profits Interest.
3. Sheltering Tax on Capital Transactions or converting ordinary income to capital gains via Synthetic Equity, ESOPs and Business Continuation LLCs.

Collectively, these strategies provide owners and key executives with wealth-building opportunities and position the company as an employer of choice. Ideally, these strategies also improve company performance by reducing executives’ and owners’ financial stress.

Want these programs to succeed? Try incorporating “opt-out” strategies rather than opt-in strategies.

Here’s an example. Take a portion of annual bonuses and positon them into insurance based programs (aka, 162 bonus), thereby helping executives to exclude earnings on these bonuses over the long term. Or adopt automatic enrollment for some of your qualified plan benefits. Certainly, give executives and owners the right to opt-out if they want. Most will stay in the programs and reap the benefits.

Want to learn more? Nudges are cues embedded in the design of a tax reduction program that direct human behavior without dictating it. Behavioral economist Richard Thaler just won the 2017 Nobel Prize for Economics showing the astonishingly powerful effects of the “Nudge” (Thaler’s book).

See our recent white paper entitled Keep More of What You Earn and see if you can nudge your co-owners and executives to do better financially both in and out of the business. Shelter income, growth and succession and see the rewards for yourself.

Please contact us to learn more.