Hey. Wife’s dad is coming up on age of RMDs. 2 years out. They are really concerned about the tax. They get social security and Medicare. They want to strategize to reduce their tax bill. What do you all usually tell ur clients? My wife and I actually have a business plan and her father has already said he’s going to give her an inheritance. My thought is why doesn’t he just invest in our company, be 98% owner to generate NOLs which will reduce his income? It prob won’t generate until 5 years

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Invest in YOUR company that he would own 98% of?

Investing in a business creates passive losses so they can’t currently be deducted - your whole question stems around tax avoidance and you use the term “invest” making it clear that he is not starting a business that he will manage and substantially participate in but rather participate as an investor making the losses non-deductible. So in that scenario they still pay tax on the RMD but have no cash to pay the taxes because they invested it in a company to intentionally create losses.

You’re telling me they have $400K per year they will need to start receiving and they don’t want or need that money so are trying to figure out how to not pay tax on it? At that income why are they so concerned about the tax? It shouldn’t affect their social security and that will be small compared to the RMD anyway so the math isn’t mathing. That money will be taxable to someone, even if inherited.

Maybe I just don’t like the fact that your whole post feels like it’s trying to convince an old man to give you money and claim he can save on taxes if he does. Or at least trying to come up with a strategy that involves him giving the money to you and/or your spouse.

He can do a QCD and give $100K of the RMD to charity and avoid paying taxes on that $100K.

And please don’t ask if you can form a charity to receive his QCD.

smart

His shares would be gifted before then. But it’ll take some time to see revenue.

Sounds like you’re pretty set on this idea. Why ask fishbowl?

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Continued: We figured this could help him and help us. Not sure if this would work. (No im not consultant). Figured when it actually starts making money that we just make his K1 final so he won’t have to worry about that but at least he would have already transferred 3 mill for the investment in our company and also as a way to give the inheritance and also help reduce his income thru NOLs for his concerns of the RMDs. Thoughts?

Edit: 400k in RMDs.

How confident are you in this business? Sure, decreasing taxable income is great, but you only get to do that because you are losing money.

How big are the RMDs? How much tax is he expecting?

If it were my client, I would advise against it for a number of reasons. Your interests and that of your family member are not as aligned as you think they are. ( Please note that you spend most of the time in the comments defending the work you've put in in the business and why you think it's viable, not why you think it's in your family member's interest to invest.) There are lots of ways to minimize the taxable impact of RMDs while facilitating wealth transfer, and this not the route I would go.

How much are the RMDs expected to be?

Yes he will.

I would think about these issues separately. He should invest to best allocate his capital, not to generate NOLs that he may or may not be able to use.

I mean invest because it’s a good use of his money. Is he going to be active in the business day to day? If just an investor then passive activity rules could interfere with ability to use losses.

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