One of the most persistent problems successful business owners face is how to take money out of their closely held companies. Naturally, the concern is great when the company is owned by families or groups of families, but single individuals often face a similar problem: You have accumulated lots of assets in the business but you really aren't able to compensate yourself as much as you think you deserve. If you take too much out of the company, you damage its ability to carry on. Assuming you have no intention of liquidating, you want to find ways to keep the business healthy while rewarding yourself sufficiently.

There are many legal ways of achieving this goal. Some of them are even tax-free. Indeed, because the tax laws allow you to spread income and assets among family members with lower tax brackets, you can take money out of the corporation without subjecting it to your higher tax rate -- or even to capital gains taxes at much lower rates.

In many instances, the simplest and most immediate way for the successful business to produce a tax savings is to incorporate. Corporate tax rates are lower than individual rates. If, for example, you were making $60,000 as a sole proprietor in the 50% income tax bracket, your tax would be $17,700. For a corporation, still wholly owned by you, the tax on those earnings would be only $12,000 ($9,000 on the first $50,000 and 30% on the next $10,000). So you would already have saved $5,700. Corporations pay tax at the maximum 46% rate only on earnings in excess of $100,000.

Current fringe benefits have ideal tax consequences for any corporation. Not only do you and your employees get tax-free benefits, the corporation also gets an immediate deduction. Health plans for employees and their dependents, group term life insurance up to $50,000, and tuition assistance programs are examples. These benefits, however, cannot discriminate in favor of highly paid employee-shareholders, officers, or directors. But medical examinations, executive training, and trips to professional conventions are good ways to award tax-free benefits to key people.

Relatives employed by the corporation are entitled to the same benefits as other employees. This is important in spreading the corporation's income. Its effects are rarely dramatic, but it is the place to start.

Deferred fringe benefits are a must for accumulating large sums of money. In this area, pension and profit-sharing plans are at center stage. Again, the tax consequences are ideal. Not only does the corporation get an immediate deduction, but the funds accumulate in a tax-free trust for the employee. Such plans were originally designed to defer the fringe benefit to a later time, but a new wrinkle allows you a current benefit. By amending your existing profitsharing plan, you can borrow up to your vested interest from the trust. Interest paid to the trust is deductible by you and tax-free to the trust. Certain procedures must be followed to meet Internal Revenue Service scrutiny.

If your spouse works for the company, deferred fringe benefits are a way to accumulate even larger sums of money for retirement.

An individual retirement account is a must for every owner/employee of a closely held corporation. An IRA is a way for you to shelter income in addition to a pension plan. The maximum contribution is $2,000 per year. You can initiate your own IRA with a bank, brokerage house, or other financial institution, or you can amend your company-pension or profit-sharing plan to receive a voluntary, deductible contribution from an employee.

An IRA is particularly useful if you are married and employ your spouse in the corporation. At the maximum contribution of $2,000 per year, the family receives a total of $4,000 of tax-deferred income.

Compensation for services rendered may be the most obvious way to take money from the closely held corporation, but be careful. Taking too much salary is a common error. Assume that your salary is being taxed at 50% and the corporation is in a 30% tax bracket. Of each dollar you take from the company, you pay half to the government. Moreover, Uncle Sam has already received 30% from the business. You should decide the amount of your compensation by considering your other income, your needs and tax bracket, and the tax bracket of your corporation. Make sure that the salary does not exceed a reasonable compensation, or the IRS may tax the excess as a dividend, which would be nondeductible. A way around this potential IRS foray is to employ other family members in the business.

Interest-free loans by the corporation to stockholders are a superb way to take money out of a closely held business. A taxpayer recently doubledipped his tax savings with Tax Court approval. He arranged interest-free loans from his corporation and used the funds to invest in tax-exempt bonds. While the IRS decried this tactic, the Tax Court said the law was on the side of the taxpayer.

Your spouse or children are also eligible for loans if they are employees and own stock in the business. If they are in a low tax bracket the situation is even better for distributing corporate income. But here you should exercise caution. To demonstrate of the IRS that the money transferred was truly a loan and not a gift, the corporation should present a demand note to the borrower, and repayment should be made periodically.

Stock dividends offer another tactic. The first thing you need to do is declare a stock dividend. In most cases, the stock dividend will be tax-free to the stockholders. The stockholders then can give stock to members of their families. You can give up to $10,000 per year to each individual without having to pay a gift tax. For example, if you set the value of the stock dividend at $40,000 and divide it equally among four beneficiaries, you can stay within the exclusion. Now that the beneficiaries have shares of stock, you can pay them cash dividends. And if they have no other income, these dividends will escape most taxes.

The gain from a stock redemption, in which a stockholder liquidates his or her interest in the company, is usually taxed at the lower capital gains rates. For the owner who is retiring and leaving the operation of the business to other family members, this tactic obviously can augment retirement income. But it can also have positive tax implications for the business.

Say your corporation owns, free and clear, land and a building that originally cost $300,000. Its reduced tax basis may now be $100,000 due to depreciation. But in today's market, the property may be worth $500,000. If the company stock you own is also valued at $500,000, the corporation can arrange a simple exchange of the real estate for your stock. Although the corporation would realize a $400,000 benefit ($500,000 value minus the $100,000 basis), the transaction is tax-free to the corporation, provided it is a complete redemption of all of your stock and that you own at least 10% of the total value of the corporation's stock outstanding.

As an individual, you have a capital gain equal to the difference between the $500,000 real estate value and the tax basis for your stock. But you can now lease the land and building back to the corporation at a fair rental. Best of all, you can depreciate the building (but not the land) just as if you had spent $500,000 on it, but the new Accelerated Cost Recovery System provisions may not apply.

Lease versus purchase is another method of taking dollars. Instead of the corporation purchasing property needed in the operation of the business, a partnership composed of family members can purchase the property. This could involve anything from vacant land or improved real estate to computer equipment. The property would then be leased by the partnership to the corporation at fair rental value.

The membership of the partnership depends on your individual tax needs. If the partnership is throwing off losses due to depreciation, it would be logical to have high-bracket taxpayers involved so they could take advantage of the losses. If the partnership is showing a profit, your children, grandchildren, or even retired parents in low tax brackets could absorb this income with little if any liability.

Subchapter S, the Tax Code choice permitting exemption from double taxation, can be considered for the very profitable corporation as well as the low-profit ones (see INC., June, page 104). The Economic Recovery Tax Act of 1981 reduced the highest individual tax bracket from 70% to 50%. With the highest corporate rate now at 46%, the difference between individual and corporate tax rates has become minor. For corporations with an accumulated earnings problem, an outlook for continued high earnings, and no plan to invest those earnings, a Sub S election is a means of avoiding the double taxation of dividends and the exposure of accumulated earning to taxes, while saving taxes in the long run. ERTA opened the door for certain trusts as well as individuals to hold shares in Sub S corporations. Thus you can shelter profits by electing Sub S and giving or selling shares in trusts to your lower-income relatives.

These tactics aren't intended to cover all contingencies. Indeed, there are other, more complex methods available to help you and your family members benefit from what the business has achieved. With the help of a tax adviser who can point out the nuances, exceptions, and tax traps, you should be able to plan a personalized strategy for taking money out of your closely held corporation.