John and Joanne have 2 children, Joe, 16, and Jamie, 4. John is self-employed, and Joanne works as a swimming coach for Local University. John's business is manufacturing Jaugernauts. Through the years, JoJo's Jaugernauts has been fairly successful, providing a before-tax income of approximately $100,000 per year. The business has several employees, including a secretary-receptionist, 2 sales people, 4 production workers, and 2 truck drivers.
Last year, Joanne entered a contest and won a sizable block of stock in a computer company. This stock is expected to produce approximately $10,000 per year in taxable dividends. Other than this stock, their investment assets consist mainly of savings accounts and certificates of deposits. However, in 1981, John invested in a tax shelter that provided them with tax write offs until the Tax Reform Act of 1986 curtailed the loss deduction from the shelter (i.e., the losses are considered passive losses).
John and Joanne have come to you for advice. They would like to rearrange their business and personal affairs to obtain a better tax situation. Discuss at least three actions (don't feel limited if you can think of more) that John and Joanne could take, and state the advantages and disadvantages of each. Specific numerical calculations are not required, but if you think such an example would help explain your point, please feel free to use it.