Beating the System

Don't Pay A Tax Until You See The Whites Of Their Eyes

The problem: How do you keep a little--no, make that a lot--more of your money come tax time?

Reality check: Apparently that death and taxes thing is still certain.

Done the Paula Jagemann way, taxes can almost be fun: On the surface, Jagemann, 32, doesn't seem like a Tax Goddess--or even like much of an entrepreneur: She still holds a job as assistant to the CEO of Internet service provider UUNET Technologies, and she's in her eighth year at Hood College in Frederick, Maryland, securing her degree in economics--her bachelor's degree. She's also a millionaire, worth eight figures.

Jagemann saved herself several hundred thousand dollars in taxes when she created Frederick, Maryland, OnlineOfficeSupplies.Com, which has projected 1999 sales of $6 million. Jagemann started her company last year with an initial investment of $500,000. Because she didn't have the half million dollars in cash lying around, she planned to take it from her sizable stock portfolio. But she knew that by doing so, she'd lose perhaps $200,000 in taxes, which would leave her with $300,000 to start her company. (Yeah, we know: We should all have such problems.)

So instead of cashing out the $500,000, Jagemann transferred the stock into her company, an idea she came up with from reading an investment book years before. But wait--won't her company eventually have to pay taxes on that half million when they sell it? If they sell it, yes. But Jagemann points out that her company can hold [the money] and use it as collateral to get loans. If the stock performs well, it's a double benefit to the company.

Bottom-line advice: "Pick up the phone," insists Jagemann. "I don't think you can read Taxes for Dummies and become an expert. You've got to go to an expert and check, just to be sure." Which she did, before transferring her stock into her new company. Even Jagemann admits, "I don't do my own taxes."

Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Beating the System.

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