REAL CASES

BUSINESS OWNER

RETIRED COUPLE

TEACHER

GENERATIONS OF A FAMILY

SUCCESSFUL SALESMAN
Tommy Tutone* is a born entrepreneur. When we first met with him, he was the head of a small business in Roswell, GA that engaged in consulting work for businesses. Like a lot of entrepreneurs, he did not have a lot of money saved because, up to then, most of the profits had been reinvested in the business. Given that his family was paying over $250,000 per year in taxes - and because he wanted to retire early - Tommy knew he had to plan for the future. 

What We Did

We spent a lot of time with Tommy and his wife (Jenny) discussing where they were in their financial life and what they wanted the future to look like. That conversation was important, because it helped them clarify their vision and really think about their priorities. When we were done, they had a comprehensive plan with clear action steps and time lines to get them where they wanted to go. 
  • Cash Flow - The first thing we did was to model the Tutone's financial situation. Just as business people create a statement of cash-flows for their businesses, we created a personal one for the Tutone's. That allowed us to see where the "financial leaks" were happening. Even though the Tutone's budgeted things in a general sense, they were flabbergasted at how much money was slipping out the back door. 
  • Business Structure - As a result of the sophisticated cash flow model we created, we could see that taxes were a problem. The Tutone's business was structured as an LLC, taxed as a partnership. We looked at having the LLC taxed as an S-corporation because of the substantial savings that could be earned from how FICA (Social Security and Medicare taxes) are calculated, but because of another technique we wanted to employ, we didn't implement this.
  • Retirement - Instead, we installed a qualified plan that allowed Tommy and Jenny to deduct annual contributes of nearly $100,000/year into the plan. As they were in a marginal tax bracket (federal and state) of 45%, that recommendation saved them ~$450,000 in taxes over the next decade. Furthermore, we reviewed their portfolio and found many examples of unnecessary investment risk and expensive, commission based products in their portfolio and recommended changes that reduced their risk and their cost. We also suggested that they take advantage of tax credits and other tax-deduction creating investments that they were unaware of. 
  • Selling the Business - We first worked to develop an informal valuation of the business. With that information in hand, and as conservative flow models illustrated that the Tutone's would be in a good financial position at retirement, and because they were very involved in their church and in supporting a non-profit organization whose mission was to cure cancer, we recommended that Tommy and Jenny utilize a Charitable Remainder Trust when selling the business. In using this technique, the Tutone's could avoid nearly $1.2 million in capital gain taxes on the business sale, while also receiving a large tax deduction. The assets in the trust would invested and would generate an income the Tutone's would live on for the rest of their lives. At their deaths, the remaining assets flowed into a donor advised fund over which the Tutone's children would have advisory privileges in directing charitable distributions. 
  • Estate & Business Planning - While not quite at a level the net-worth level that subjected them to estate taxes, the Tutone's were close. After the pros and cons were discussed, and out of a "it's better to be safe than sorry" perspective, the Tutone's implemented Wills and Trusts regarding their estate. We also implemented a business buy-sell agreement between the Tutone's and their minority business partners. That necessitated an amended to the business's operating agreement because the existing agreement had "boiler plate" language that gave a member of the LLC no voting rights if that member was not an active employee in the business. That meant that if Tommy died and Jenny decided to stay home with the kids, even if she was an 80% owner of the business, the other minority owners who were active in the business would have sole voting control.

Contact us if you would like to learn more. 

* The names Tommy and Jenny come from the Tommy Tutone's band and its famous song "867-5309". The names may be fictional, but the client is real. 
Strategic Wealth, LLC | 5957 Shiloh Rd, Suite 114 | Alpharetta, GA 30005 | (678) 456-5060