Colossal Danger

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yogi
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Re: Colossal Danger

Post by yogi »

It's all a fantasy, of course. I see my purchases of lotto tickets as a voluntary contribution to the state of Missouri. Sure, I'm like everybody else and would love to win, but I also realize how gross the 250 million to 1 odds are against it. That used to stop me from buying tickets at all. Now, since I can afford to give away a few spare dollars once a month, I don't mind contributing to the bank accounts of some crooked politicians. They are obligated to pay out if I do win. LOL

I don't buy tickets very often whose payout is under $100 million. I go heavy (up to a $10 limit) when the payout exceeds $200 million. I thank you for looking into the exact figures for me regarding the LLC. The way I see it is if I can preserve only $15 million until the Devil is ready to take me on, I'll be happy with that. But I'm going to have one hell of a ride getting there.

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Kellemora
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Re: Colossal Danger

Post by Kellemora »

I may be wrong about that 15 million. You can have a Capitol Investment in an LLC of any amount.
Each state has their own laws, and some of them do not allow more than a certain percentage of working capital be maintained by an LLC without using up excess in distributions. Basically to prevent LLC's from becoming a way to hide money. Since you have to pay then income tax on the money before you put it into the LLC, by doing so, if you take it as a salary, draw, or disbursement, you owe income tax on it again.

This may very well be why my tax attorney had me LOAN my money to the LLC rather than investing it as a Capital Contribution. I did invest the same amount as my son to get it started as our capital contributions to equal 50/50.
But the bulk of the money needed for the LLC to buy all those houses was made as a Loan to the company, with 1% per month interest in the beginning. I had to pay the income tax on that interest I earned, even though I gave the money right back to the LLC as a small non-interest bearing loan. I eventually stopped charging the company interest, and when I turned 65 began taking money out as repayment of a loan in monthly installments. You do not have to pay income tax on return of principal on a loan.

From what I understand, even if you did win the lottery, and your ticket was purchased by your LLC, they would still owe the winning tax on it, and even possibly income tax since the money was not actually earned income for the LLC.
So many rules and regs concerning the government and how they tax things, one can go bonkers trying to figure it out.

My best advice is, IF you happen to win a huge lottery payout, don't go to collect it until after you talk to a tax attorney, and form an LLC or whatever the attorney says is the best approach to protect your newfound asset.

One caveat I learned the hard way. If your LLC buys a tangible item, and you use it for personal use, this can also be considered co-mingling of funds, but in a different way, and probably using a different term.
A company can provide company benefits, but those benefits are all taxable as personal income, and the company has to issue you the proper form, such as a 1099.

Tennessee has some mighty strange laws regarding businesses, especially those operating on residential property.
This is one reason why I never changed my LLC from Missouri to Tennessee.
I also do not claim any sales in or from the state of Tennessee, because it would open a whole big can of worms I don't want to deal with.
We have annual taxes on all office machines down here in TN. But not on personal computers or machines.
So, although the company owns two computers, and I own two computers, and all the rest down here are depreciated to no value, hence no tax, hi hi. The business computers are used remotely from the St. Charles, MO registered office.
That's the way we set things up, although they have changed a little bit over the years as my brother moved from place to place. Now that I'm retired, I don't really keep up much with all the legal mumbo jumbo from when my business was active.

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yogi
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Re: Colossal Danger

Post by yogi »

My only interest in forming an LLC would be to protect my assets (lotto winnings) from would be con artists and fake law suits. I'm not sure it's possible, although it seems likely, to have any assets protected from seizure or forfeiture. The idea of forming a corporation came from an article that didn't really provide any details such as you so generously have done already. So, my primary objective would be to protect part of my winnings.

I have to laugh at myself for setting a $100 million threshold as the point at which I would consider it a serious win. That would be the point where I'd have to do some advanced planning. There is no way I would do anything other than take a lump sum payment, which means at least 50% of the advertised payout will go to pay winning taxes. Half of what is left over, $25 million in this example, would go into a minimum risk income producing fund. I'd guess I could get at least 3% interest on that amount easily, which in turn would generate $750,000 of interest income each year. Again, I'm figuring that the IRS will want half of that so my anticipated annual income after taxes would be around $375,000. I probably could live comfortably on that.

The other $25 million would be put in a safe place but would be my "mad money." That would be money I'd give away or spend frivolously as the occasion arises. One thing in the back of my mind is to take care of my two girls. Giving them, say, one million each should hold them over and keep them quiet until they can get their hand on the big bucks. Wife has three siblings who I suspect she might want to endow with something so that would bring my pot of gold at the end of the rainbow down to, maybe, $20 million.

Those are pretty big numbers but not so big as to be mind boggling. Not to me, anyway. It is possible to win a lot more. Jackpots in the $200-$300 million range are not that uncommon. Thus all my numbers would be multiplied 2 or 3 times and now I am getting a little nervous about what to do with it all. LOL

I wonder how much a used super computer would go for ... :think:

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Kellemora
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Re: Colossal Danger

Post by Kellemora »

It would be nice to have something to make our final years more comfortable!

I may have told you this once before, but I won a car once.
This was at a 1972 Octoberfest in Herman, MO
The car I won was a 1973 Mustang Convertible, fully equipped, sticker price 4800 bucks give or take!
No car ever sold for the sticker price back then, or now either for that matter, you always get a discount of some type.
However, when you win a car, the taxable amount is what the dealer declared, which is the sticker price.
Although winnings tax is now only around 34% back then it was 48%
I could NOT take cash in lieu of the car, mainly because of taxing issues I assume.
My dad told me not to accept delivery of the car yet, because it would depreciate by about a grand if I did.
He also checked into what the insurance on the car would cost and it too was much more than I could afford.
We found a different dealer than the one who provided the car to sell it to, because the dealer said he couldn't give me cash in lieu of car and didn't want to have any issues over it. For him it was a major tax deduction.
We also had to find out how much tax I owed on it before I sold it back to the dealer.
The winnings tax was a little over 2 grand, actually closer to 2 and a half grand if I recall.
The dealer agreed to pay us 3,250 dollars now, and if he could resell the car for more than 4,300 dollars he would split the difference of the overage with me. Dad thought that sounded fair.
We put that money straight into the bank so we had it to pay the taxes.
3,250.00 minus winnings tax of 2,300.00 = left me with 950 dollars is all.
Now wait, I got hit with more taxes. Out of the 950.00 I had to pay 250 dollars in sales tax, since I sold the car.
Well, at least I had 700 bucks left over to spend on myself.
But NO, how much I sold the car for was INCOME with no deduction since I didn't buy the car to resell.
So I would have owed over 800 dollars in income tax on my federal income tax return, and some on my state income tax return. Dad immediately called Uncle Bob the CPA. After listening to our whole story, he said let me make a few phone calls and I'll get back to you in a couple of days.
Here is what he came up with, because my winning tax was based on the full price of the car, that established the legal value of the car. Because I sold it for 3,250.00 bucks, that gave me a 1,550.00 valid deduction. Uncle Bob also got back 87 dollars of the 250.00 in sales tax I paid out. I also only owed 442 in federal income tax now.
So, the 950 I had went up to 1,037, minus the 442 left me with 595 dollars.
As far as the state was concerned, although I did owe taxes on the car, with all of my other personal deductions, it came out as my taxes were 5 bucks lower.
This is why I've always said. Winning a car valued at 4,800 dollars left me with only 600 bucks after taxes.
It would have been less than that if Uncle Bob charged us for the labor of his time.

Dad said the reason the car dealer would not give us cash in lieu of prize is because the value of the car was probably less than 3 grand to him, or whatever his actual cost was for it. His excuses were probably all hog-wash, hi hi.

I won a LARGE upright freezer in the 1980's, twice as big as the old one we had. I did not owe any taxes on it of any kind, even though I won it. Part of the winning prize was all taxes paid. I still worried since the fiasco with the car about income taxes. I didn't sell the freezer so wouldn't have sales tax involved. But it was still income to me! Even if in the form of an tangible item. A freezer like that sold for around 850 bucks at Cohen Appliance. And at the time our state said we could win up to 600 dollars. And I knew the place I won it from had to report it. Once again I called Uncle Bob and asked him. He said I would have to wait until the end of the year when they would send me an income statement. Well, I did get a 1099-MISC showing the value of the freezer at 250 dollars, with 60 dollars in taxes pre-paid.
So I guess technically I had to pay 5 dollars in tax, but with my personal deductions it became a wash.

What is a shame is you cannot deduct all the post-cards and postage stamps used to enter all these contests. Only the actual contest you won and only the winning entry, or roughly 35 cents back then. Not worth the paperwork to claim.

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yogi
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Re: Colossal Danger

Post by yogi »

Speaking of fun with taxes ... I probably already mentioned this story elsewhere, but the saga continues on til today. :mrgreen:

Back in 1979 I bought some vacant land from a fellow Motorolan. The lawyer, his lawyer, told us at the time that there was something called the Platt Law that we probably would be breaking. However, it's never enforced. The law says you can't just sell off a piece of your property to ta total stranger unless you subdivide the property first. The exceptions being blood relatives and neighbors immediately adjacent to the property. Subdividing the property is roughly an 18 month process and nobody wanted to do it. So, given the minimum risks involved I bought the property in my name and my wife's name.

We would visit the property maybe once a year just to be certain it was still there, but it was horribly overgrown. I don't think anybody set foot on that land since the time the Plaines Indians were hunting on it; assuming they actually did such a thing. In 1986 we thought it was time to clear a spot and build our dream house. The property was actually two parcels, about an acre, with the last ten feet of it by the street being one of the two parcels. We needed that ten feet to have access to the street so that we could bring utilities up to the building. So, the mortgage and closing all was settled at the end of the year 1986.

Next year, when the real estate tax bill arrived it was addressed to the wrong party. My last name was correct but the first name was Vera. I paid the bill anyway and filled out the form on the back of the bill to tell them I'm not Vera. They ignored it for at least ten years at which time I became aggressive and used permanent marker to fill out the correction form. The marker bled through to the front of the bill and must have messed up their scanners. LOL Anyway, the name was fixed, probably around 1997. Don't recall for sure anymore.

Looking over the Unclaimed Property website for the state of Illinois last September, I discovered Vera was owed $9.51 in unclaimed funds. The State of Illinois has some fantastic web sites and it was pretty easy to state my case and upload a copy of my signed claim. A few weeks later I received an e-mail from the Illinois Treasurer's office requesting an explanation of how I am related to Vera. I sent back a letter pretty much explaining what I just told you here. There ain't no Vera and never was. A few weeks after that I get another e-mail wanting the Original Holder of the Property to verify that I am entitled to make the claim. I sent it back claiming I'm the Original Holder. Apparently I'm not. I got another e-mail a few days ago admonishing me to fill out the form correctly. If I don't they are going to forget the whole incident after 90 days. It took a few readings and some concentrated thinking, but I figured out what I did wrong. The Original Holder is the County of Cook Treasurer; the folks who screwed up the name in the first place. So, apparently the Office of the Treasurer of the State of Illinois has no communication channel with the County of Cook Treasurer. They certainly aren't in a mood to look up any real estate records.

Even if the state Treasurer did look up the records, he would find Vera's name on my tax bills for about 11 years. Then it suddenly switched to my name. Nobody cared about that because, well, I paid the taxes and that's all they wanted from me, or Vera, or anybody. As I understand it now, the State Treasurer wants me to get the Cook County Treasurer to say that they screwed up and put the wrong name on the bills; plus they must say it's OK for me, Dennis, to make the claim. What are the odds of anybody in the County Treasurer's office knowing what I'm talking about? LOL

Legally I think I'm screwed because I can't prove I was mistakenly called Vera at the time the County of Cook decided I overpaid $9.51 on my taxes. Of course the money is unclaimed. There is no Vera. So, contrary to all rational thinking, I sent off another letter to the state Treasurer this morning explaining in greater detail what happened. My guess is that they will see the reasoning I used to justify making the claim. But, since I can't get anybody to verify all that, the property is lost. Fortunately the rebate is on the small 10' section of land. The other larger piece with the house on it would have involved $4000+ in rebate. I would of had to get a lawyer to fetch that amount.

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Kellemora
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Re: Colossal Danger

Post by Kellemora »

I've only had one real problem and that was with a rental property I purchased from the owner.
In Missouri we use Title Agencies, which insures their stuff is accurate.
We closed on the deal, and the search showed absolutely nothing amiss up, so I got a deed to the property.
This was sort of an unusual deal, because the house was vacant when I bought it for renovation purposes.
However, I agreed to let the guys cousin move in temporarily after he had a fire at his house.
I told him ahead of time that I would be in there doing work nearly every day, but would start in the back rooms first.
He said that would be fine. This particular house was already up to code, so all the work was just cosmetic.
However, one of the back rooms was still plaster and I wanted to knock it all off and install drywall.
I mentioned this to the guy who was staying there, and didn't ask him to do it.
This was on a Thursday, and I told him I wouldn't be back until Tuesday because I had to run out of town. I'm pretty sure it was for an uncles funeral in Arkansas.
When I did get there Tuesday morning, I had almost called the dumpster folks before I went into that room.
The guy had not only removed all the plaster, but he cleaned it all up and vacuumed until the room was spotless.
He also removed all the outlets and switches, and capped the wires and tucked them back into the pull boxes.
So it was all ready to put up the drywall. So I called up the drywall company to deliver the drywall.
About that time he came in the door. He was as apologetic as all get out because he made a small hammer hole in the ceiling. Said he thought it was plaster also until he swing the hammer, hi hi.
I tried to pay him for doing all that work, and he wouldn't take a dime of it.
I asked what he did with the plaster, and he said he took it to his house and spread it where a garden used to be, since he was going to be putting a slab there for a patio.
He also said they were about done with his house already. He expected it to take a few months, not just a few weeks.

OK, I finished the house and when I sold it, we hit a snag at closing.
The Title Company doing the closing found a registered quit-claim deed made out to the former owner.
So, how can that be a problem? It was quit-claimed, so the owner could sell it.
The person who signed the quit-claim deed also placed a lien on the house which was not released.
So we could not close on that day as expected.
I called my Title Company and told them what's up and they contacted the buyers Title Company.
Turns out, the owner was supposed to pay for the work his partner did on the house, and decided after he got the quit-claim deed he didn't have to pay the loan. So with contract in hand, he went and had a lien placed on the house.
This is why I like using Title Companies! The Title Company paid off the lien so we could close on the house, and then they went after the former owner to get the money back from him, hi hi.
We closed three days later with no more problems.

One of the houses I first looked at down here to buy, when I looked at the plat map I said no way.
Too many encroachments on the property to mess with. Half of a neighbors garage stuck into one corner, and on the other side the corner of a house stuck into the property by about 12 feet or so.
Although I found out how that happened, it would be a nightmare for me, so I passed on the deal, and bought another house to renovate for the frau and I. Which I ended up selling only partially done when the frau's dad suddenly passed away and I had to take care of his wife.

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yogi
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Re: Colossal Danger

Post by yogi »

Speaking of little glitches ...

Regarding the property I described above, we used a title company to buy it and mortgage the house when we built on it. The 10'x100' slice of land that separated us from the street was owned by the board of education. Apparently all the land around us was at one time until they cut out pieces of it on which to build the first homes. So, when we decided to build we had to get ownership of that land first. Our lawyer did all the work and got them to "give" us the land for free. Apparently it was all cool because the title company didn't find any problems when we closed on the house, which by the way was on the 1st of December.

Moving forward about ten years, the interest on mortgages dropped dramatically. Additionally, since my wife worked for a company that owned a bank, we would get an additional 1% cut in the current rate. And, since it was such a good deal, we cut the mortgage down to 10 years instead of the original 30. All went well up to the end when it was discovered that there was no evidence of real estate taxes being paid on that 10' of land for the month of December in the year we closed on the house. Well yeah, the county, same people who screwed up my name on the tax bill, forgave us any taxes for that single month but we never got a record of that forgiveness. Thus the mortgage company wanted proof that there was no tax due. Again, our lawyer proved his worth and got a letter from the county clearing the record. It took a couple weeks longer, but we were able to refinance.

I don't recall if we bought title insurance or not at that time, but the lender was concerned. Given that the annual tax on that small parcel was under $10, any amount due for one month would be less than $1, which as I understand it isn't of any legal concern. But, we wanted the mortgage so we paid the lawyer to get that letter.

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Kellemora
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Re: Colossal Danger

Post by Kellemora »

I think I mentioned this once before.
Our two deeds are for a half-acre lot each.
When the City of Knoxville Annexed us and doubled our taxes, they didn't annex us all the way up to our back property line at the top of the hill.
The short version of that is, they only annexed as far as the 50 foot wide road easement, of a road that was never built.
But the part of the road easement on my side of the hill is actually only like 15 feet.
So when the easement was dropped, that 15 feet that was already mine, the city did not pick-up when drawing their new border line after annexation.
I get four tax bills, two from the county and two from the city.
The county shows my entire property. The city only shows up to the border line.
So I have roughly 15 feet that is not taxed by the city, hi hi.
Not that it would matter much since it unimproved ground.
Since I do pay the County for the entire back lot, there is no tax shortage.

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