Case Study
entrepreneur save income and estate taxes
while addressing his philanthropic life goals.
Subject
Concentrated position in an early-stage private growth company
(~92MM 409A valuation).
Objectives
- Tax efficient diversification and de-risking of portfolio.
- Provide security for immediate and extended family members.
- Establish program for charitable giving.
Process
- L-Tax Team: Analyzed current tax condition and forecasted tax ramifications based upon different liquidation scenarios and potential impact of proposed IRS code changes.
- Wealth Planning Team: Compiled all personal and financial information generating a comprehensive “base-line” financial plan LAWP used as the foundation for all strategy decisions.
- Estate and Trust Team: Based upon financial plan information and tax projections developed an estate plan to preserve family values, address multi-generational planning concerns and mitigate estate tax liability.
Strategy
- Utilize IRS Code Section 1202 Qualified Small Business Stock (QSBS) exemption to reduce capital gains.
- Employ QSBS “stacking” by establishing irrevocable trusts to benefit family members and reduce tax liability by maximizing exemption with multiple trusts.
- Establish Donor Advised Fund (DAF) to address philanthropic interests and reduce tax liability. Ultimately, the DAF will be converted or combined with a Private Foundation.
- Accelerated a percentage of liquidation into Q1 2021 to take advantage of current capital gains rates and potentially avoid impact of proposed Biden IRS Code changes.
- Provided analysis and strategy relating to IRS Code Section 1045. Qualified rollover of gain from QSBS to another start-up QSBS company.
- Provided state relocation analysis. Client lived in high tax state that does not recognize IRS Code Section 1202 QSBS exemption.
Results
Client has structure and process around decision-making for exercised options and remaining ISOs. Funding of retirement and financial plan has been initiated. Portfolio risk has been significantly reduced.
Estimated tax savings: $437,179.00
LAWP developed a specific actionable plan to accomplish this family’s above referenced objectives.
Potential estate and income tax savings: $22,319,485.00
LTax is a boutique tax firm emphasizing personalization, communication, and
initiative-taking responsiveness.
We take a consulting approach to tax preparation and planning, ensuring regular client communication and a personalized understanding of our clients’ needs. We tirelessly research tax mitigation strategies and develop actionable recommendations for the benefit of our clients.