Business Income Planning Who can benefit ? Any one who gets 1099-Misc. or reports income on Sch. C, Partnership, S-corp., LLC, LLP K-1 Different planning options Action must be taken by you ! Government has there own Plan - “ Take All We Can !” Financial Services1

Bad News, Good News! Bad News – Taxes have already gone up - CA State tax rates are 4%, Federal tax rates went up in 2013 as well. Good news – you can choose to keep your taxes low. Only if you do proactive planning and take action before it’s too late. Financial Services2

Traditional Planning Ideas Accelerate deductions -- pay property tax earlier Convert regular income into capital gains Contribute to SEP IRA, PSP, IRA, 401(k), 403b Charitable contributions Charitable Giving - CRT, Donor-advised fund Financial Services3

Usual Recommended Planning Idea DB Plans for business / professional income Growth inside the DB plan is tax-deferred Withdrawals or Income from DB plan is taxed as Ordinary income Govt. requires the income distribution (RMD) after age 70.5 yrs even if no income is required in retirement Balance in DB Plan is subject to estate tax Financial Services4

Better Cutting Edge Planning Idea S.79 Plan Tax Deductible to C Corp It is a Group Benefit plan Get Tax Free Income Financial Services5

What is S 79 Plan? It is an IRS-approved group benefit plan for all eligible employees of a corp. provided it is offered on non- discriminatory basis Tax-free benefit up to a prescribed limit Benefit over the limit is taxable based on calculation of economic benefit formula Financial Services6

Characteristics of the Plan It is a corporate-sponsored plan Plan is NOT owned by corporation Plan is individually-owned It is a compromise between traditional qualified plan and Roth IRA …But Best of Both ! Contributions are partially deductible Growth is tax-deferred Distributions are Tax-free Transfer is Estate Tax-free No RMD’s required NO age restrictions for distributions from the plan Financial Services7

Salient Features of the Plan For less than 10 employee company, the contributions are limited For more than 9 employees company, there is no limit It is a 5-year plan Two plans can be done in parallel Every 5 years, a new plan can be done Financial Services8

Salient Features – contd. Plan is administered by TPA appointed with IRS Plan is only offered by two insurance companies IRS has pre-approved the plans of both the insurance companies Investments choices available to participants from a menu of choices NO downside market risk, only Upside potential up to cap limits Financial Services9