Had enough of being the boss, but...

[Texas Proud]

My question and your comment....

I do not see how the book value is making your gains tax free.... did you have a huge loss? It does not seem correct as you say you have basis in the stock... a loss would reduce your basis...

So, please explain how your S corp can have earnings and those earnings are not taxable? Or provide a link...

I would ask what your S corp shares earn? IOW, you do not have to take a salary if the S Corp is throwing off some big divis... If they are good, then why sell your shares? (except for it being a huge part of your NW)....

The shares have been paying a 5% dividend and gaining about 8% per year above that. Because of the below book value formula, the gains and dividends end up being tax free - unless the company is sold. It would sell for 2 to 3 times book value, but this is not my call. I would have a very significant capital gain and all financial concerns would be satisfied in that event.​

 

[bigcmagor]

My question and your comment....

I do not see how the book value is making your gains tax free.... did you have a huge loss? It does not seem correct as you say you have basis in the stock... a loss would reduce your basis...

So, please explain how your S corp can have earnings and those earnings are not taxable? Or provide a link...

I would ask what your S corp shares earn? IOW, you do not have to take a salary if the S Corp is throwing off some big divis... If they are good, then why sell your shares? (except for it being a huge part of your NW)....

The shares have been paying a 5% dividend and gaining about 8% per year above that. Because of the below book value formula, the gains and dividends end up being tax free - unless the company is sold. It would sell for 2 to 3 times book value, but this is not my call. I would have a very significant capital gain and all financial concerns would be satisfied in that event.​

With a 2/3 of book value share price, the basis is rising faster than the redemption value, which probably means the redemption value is too cheap. I report my share of the company earnings on a K-1, the company issues a tax dividend to cover this liability. So I report a whole bunch of income that I don't receive. The pay off is when I sell and the price is below basis. Maybe an accountant could explain it better, but every year when I inquire about my basis with our CPA, the difference between that and redemption value grows.

 

[Ready]

BigC,

You mentioned that you have a President running the company now and you are just overseeing the President part time. Are you confident that this President is ready to completely take over the company and drive it toward continued success if you were to back away completely?

 

[bigcmagor]

BigC,

You mentioned that you have a President running the company now and you are just overseeing the President part time. Are you confident that this President is ready to completely take over the company and drive it toward continued success if you were to back away completely?

Yes, although I have some slight concerns about culture. I have fired customers who did not respect us - our largest customer at one point in fact. The new president is more revenue driven than bottom line conscious. Our Chairman has said he does not want the new president reporting to him, so this will be another problem - or perhaps a feather in the cap of the five or ten year phase out suggestion several posters have made. I did say this was complex, didn't I?!

 

[Ready]

Yes, although I have some slight concerns about culture. I have fired customers who did not respect us - our largest customer at one point in fact. The new president is more revenue driven than bottom line conscious. Our Chairman has said he does not want the new president reporting to him, so this will be another problem - or perhaps a feather in the cap of the five or ten year phase out suggestion several posters have made. I did say this was complex, didn't I?!

I don't think it's complex at all. You have a company that you built. You have a Chairman who respects you and sees value in having you continue to be associated with the company and keeping an eye on it while you let the President handle the day to day stuff. You need to stay in the area to care for your parents for the time being.

It seems like a very simple decision. Stay put, keep putting your 15 hours in and earning your salary, take care of your parents, and until something changes, there is no need for you to do anything different.

 

[pb4uski]

.... The stock is worth $1 million. The basis on this stock is $1.25 million, so I will have a capital loss when I redeem it that can be used to harvest capital gains in retirement. ....

It seems to me that other than the $3,000 per year that can be used against ordinary income that there isn't much of gains to offset other than perhaps any capital gains on reinvestment of the proceeds from the sale of the stock... so it will take some time to extract value from that $250k loss carryforward.

 

[Texas Proud]

With a 2/3 of book value share price, the basis is rising faster than the redemption value, which probably means the redemption value is too cheap. I report my share of the company earnings on a K-1, the company issues a tax dividend to cover this liability. So I report a whole bunch of income that I don't receive. The pay off is when I sell and the price is below basis. Maybe an accountant could explain it better, but every year when I inquire about my basis with our CPA, the difference between that and redemption value grows.

OK... that is what I thought.... you had said that your 'dividend' was tax free and that did not make sense... IOW, you ARE paying taxes on the income of the S corp, BUT you are not receiving all that income in cash... sure, when you sell you will either have a cap gain or loss based on the basis...

I would not call that tax free dividends which is where I was confused...

 

[Aerides]

Just to chime in against the tide of "keep up the cush 15 hours and keep getting paid".

We all know that 15 hours, or 40 hours, or 60 still means that work is almost always on your mind, especially with the type of leading role the OP describes. It means the phone can ring, the email needs a response, a moment here, a moment there - it never really leaves you.

I worked from home my last few years, and when I was FI I made a conscious effort to cut back, start delegating more, in prep for ER, but that still meant that my job and responsibilities were never far from my thoughts. And yet I was told I was crazy to think to ER, that I had it made.

ER meant freedom from that. 15 hours or 50, when you're done, you're done.

 

[Nature Lover]

Just to chime in against the tide of "keep up the cush 15 hours and keep getting paid".

We all know that 15 hours, or 40 hours, or 60 still means that work is almost always on your mind, especially with the type of leading role the OP describes. It means the phone can ring, the email needs a response, a moment here, a moment there - it never really leaves you.

I worked from home my last few years, and when I was FI I made a conscious effort to cut back, start delegating more, in prep for ER, but that still meant that my job and responsibilities were never far from my thoughts. And yet I was told I was crazy to think to ER, that I had it made.

ER meant freedom from that. 15 hours or 50, when you're done, you're done.

OP has received some very valuable input on this thread, and have to admit that the two bigger issues I see are:

1) whether to continue working for the financial benefits (to which Aerides points out has a tradeoff), and

2) whether OP is ready to step away, given the potential impact on the company. This concern:

"I'm afraid they will sell the company when I've finally had enough and while that would solve my numbers problem, I don't think it would be a good thing for our employees and would not want to be responsible for triggering the event."

Clearly OP wants to retire for the benefits (and is in a position to do so), but needs to work out these two issues.

Maybe further discussion with the Chairman could be helpful in finding a solution to both concerns.

 

[Blue Collar Guy]

If i read it right you are out of the market, so how do you plan on getting this 120,000 a year,? Unless its Berkshire Hathaway, having most of my money in company stock is your risk not the market as a whole. Sir you need to diversify, and fast.

 

[bigcmagor]

If i read it right you are out of the market, so how do you plan on getting this 120,000 a year,? Unless its Berkshire Hathaway, having most of my money in company stock is your risk not the market as a whole. Sir you need to diversify, and fast.

If I retire, I will have to deploy my resources into growth investments quickly. I would plan on managing income primarily through Roth conversions to balance health insurance premium expense and RMD's down the road. I could sell appreciated stock(after a year) and begin to use up the loss carry forward too. The problem now as I see it is timing. I feel we have much more downside risk than upside opportunity.

The company stock would seem like a big risk, however, I have been employed with this company for 35 years and we have never lost money. Since the stock value is a fixed percentage of book value, it has never done down in my time there. Further, if clouds begin to form, no one will see it before I will and I have an immediate exit opportunity. It's been returning about 13% after tax too, so that's pretty tough to beat these days.

As some have suggested, I met with our chairman today to see how he views our options. His suggestion was to stay on for another 4 or 5 years to solidify my financial position and not to worry about working short hours, especially since three other family member/employee shareholders are working well under full time hours.

He didn't think my "fix it now nature" would lend itself to a board position very well. He's probably right on that.

At this point, he knows I feel guilty about whether the shareholders are getting their money's worth from me and I am willing to retire fully at any time or consider a glide path of various designs that suit both of us. Having that out in the open has helped ease my mind for the time being.

I'm doubtful that I will do this for five more years, but I plan to stay with it for now. Thanks to all posters who helped sort this out for me.

 

[kcowan]

.. At this point, he knows I feel guilty about whether the shareholders are getting their money's worth from me and I am willing to retire fully at any time or consider a glide path of various designs that suit both of us. Having that out in the open has helped ease my mind for the time being.

I'm doubtful that I will do this for five more years, but I plan to stay with it for now. Thanks to all posters who helped sort this out for me.

I appreciate your forthright responses and I think you are on the right course. I am a bit ahead of you (Dad died in 2000, MIL in 2008), so we are "free". Just get over any feelings of guilt and enjoy the time remaining. Perhaps you could declare the time remaining (countdown clock) to your trusted compatriots. This should ease the pressure on you while getting stuff done that needs attending to. Knowing it will be over should ease the pressure.

Good luck!

 

[BeachOrCity]

I think you have alot more choices and flexibility than you realize. One of those choices is to "do nothing".
Given it wont be a disaster (financially speaking), i would let life come at me and make choices as i need to. There is no way to anticipate what will happen with your parents, the market, or the company / job.

 

[Nature Lover]

As some have suggested, I met with our chairman today to see how he views our options. His suggestion was to stay on for another 4 or 5 years to solidify my financial position and not to worry about working short hours, especially since three other family member/employee shareholders are working well under full time hours...

At this point, he knows I feel guilty about whether the shareholders are getting their money's worth from me and I am willing to retire fully at any time or consider a glide path of various designs that suit both of us. Having that out in the open has helped ease my mind for the time being.

Very happy for your progress. The chairman's response (to stay on for a 4 or 5 more years) is par for the course when you're a valued executive. At least you are now free of the concern/guilt that your in some way taking advantage by continuing to work shorter hours and continuing to collect your pay. While you might not continue on for 5 more years, you now have the freedom to relax and develop a timeline that is best for you.

 

[Penny6]

You could downsize your current home and sell your boat to reduce the yearly expenses and pad your income producing assets. Your parents are aging but are not fully dependent yet, so you can be snowbirds for a few years and get continued usage of your Fl home. If your parents do pass, at that time you sell your home and move to Fl. As long as you are not overspending it seems as though your assets could carry you.

 

[bigcmagor]

Thought I would provide an update for those who helped me last year with my decisions.


At year end, expect investible assets to be up $300,000 to $2.3mm.


Took over the chairman position at work and have continued to go in to the office three days per week for a couple hours to be available and visible for the months I am in town.


Moved domicile to Florida (leaving Friday to get my 6 months in) and stopped paying local and state taxes - saving $25,000 or so this year. New granddaughter is complicating this with DW however.


Dad can barely walk now and shouldn't be driving. Mom is no better behind the wheel. I break out in a cold sweat every time the phone rings. I fear ruining the relationships if this is dealt with aggressively, so don't know what to do but wait for bad news.


My plans for work and living arrangements can and likely will change abruptly. Just waiting to deal with it when it happens. Until then, working the plan that many here helped me get comfortable with 18 months ago - and so far, life is good!

 

[WyomingLife]

Wasn't (visibly) here last year, but followed your story while hiding behind a tree. Thank you for the update. Congratulations and best wishes. Best wishes for your parents, too. Hang in there. Life is a journey, and we are all very fortunate.

 

[target2019]

You're definitely swimming against the current here Oddguy. I know that I can retire now if I commit to ditching some expenses and just figuring it out as the world throws me pitches. There's just a lot of moving parts to this story at the moment. Thanks for the vote of confidence!

I too just read this thread for first time.
I highlighted one sentence. When I first read it, thought that moving parts seem to increase when there is inertia. Glad you simplified many things, and hope your machine has fewer moving parts as life grinds on.

 

[Katiek]

Thanks for the update and sorry about the worries regarding your parents. Would they consider an independent living facility where they could live on their own, but not have to deal with transportation issue/

 

[HI Bill]

Dad can barely walk now and shouldn't be driving. Mom is no better behind the wheel. I break out in a cold sweat every time the phone rings. I fear ruining the relationships if this is dealt with aggressively, so don't know what to do but wait for bad news.

I don't know what the laws and procedures are in your state, but in CA, you can sent the DMV a DS 699 form: 'Request for Driver Reexamination' form without your family member knowing it was you who sent it. The CA form has conditions such as medical, mental, physical, vision, confusion, etc. as reasons for requesting the re-examination.

Taking away the keys, or disabling the car are probably last resorts.

My mom had her license suspended after her re-examination, and she thought that her new State ID was a valid license. Although she kept talking about wanting to return to driivng, she never did. She and the public were both saved from her vision, reflexes and memory problems.

Best wishes on finding a safe and amenable solution.

 

[Bamaman]

You are definitely the man in the middle. Done very well for yourself, and you're going to have a great retired life. But my main concern would be getting paid for ownership in the business--for what it's actually worth.

I inherited a partnership a 10 story office building in a prime location--full of CPA's and lawyers. The original partners have either died or pushing 90 years old, and their children want to keep the building for the long term. We had very difficult negotiations on a buyout of our portion of the partnership because the partners didn't want to divvy up the cash out of their personal coffers to buy us out. I know our part of the pie was discounted and we didn't receive our full deserved share. But there again, every company and corporation has a lifespan, and companies don't last forever.

Private corporations, SubChapter S's and LLC's are the same way unless there is an etched in stone buyback agreement and unless the business has sufficient cash to buyback stock/ownership. Sometimes it's best if companies are sold--for the good of all parties and family members. Good luck to you.

 

[bigcmagor]

Thanks for the update and sorry about the worries regarding your parents. Would they consider an independent living facility where they could live on their own, but not have to deal with transportation issue/

Assisted living would be the best option I see and I know mom would go for it. Dad says he's going to die in his own house, a perspective I understand - given the alternatives. If he injures himself in an accident, he may not have that choice though.

 

[bigcmagor]

Since providing updates seems to be the thing, I'll add mine. Managed to add 15% to investable assets this year, bringing Firecalc up to 100%. Still holding down the Chairman position, which doesn't require much other than keeping a keen eye on the business, which I would do as a shareholder anyway.

The business has had two record years back to back. Maybe I should have stepped aside sooner! Had I chosen to stick around as President/CEO, my reported income would have topped seven figures last year - with ownership earnings being half. Probably a good chance I would be dead though, so no regrets.

Reviewed the folk's trusts over the holidays at their request. They would like to copy me on monthly statements to help protect them from all the crooks who are after their hard earned savings. These savings are now about to add an eighth digit, I might add.

Had to drive dad to a medical appointment at a university medical center over the thanksgiving holiday and had to fly home after the first of the year to do it again. At least he is acknowledging that he shouldn't be driving on an interstate. I think they may be softening their position on finding an alternative living arrangement since they can't take care of the house themselves and are finding it very expensive to pay to have everything done.

Life in Florida is every bit as good as we hoped. I'm sitting outside this evening, comfortable in shorts and my standard Columbia fishing shirt. Oh, and as many advised, we sold the boat!