Wednesday, May 31, 2006

How you own your investment can make a big difference when you sell

Often, when we set up a business, take out a mortgage, buy a stock, etc. we rarely think about what happens when we sell.

Like everything in life, a little proper planning can make all the difference down the road.

A C-Corp may make the most sense tax-wise for a business, but it may complicate or even negate using a capital gains saving strategy when the business is sold. Tax laws are different for different corporate structures.

LLCs haven't been around all that long in the general scheme of things, but this structure is often more flexible and friendly when sale time comes.

Owning a piece of investment property jointly with your spouse makes perfect sense when the marriage is going well, but if divorce becomes imminent, there can be one less than friendly spouse when it comes time to sell the property, and this could put a wrench in the plans of the other.

Business Partnerships go bad occasionally, and if the proper agreement wasn't made at the time of formation, it may be almost impossible to come to friendly terms if each partners interests and goals are different when the business is sold.

There is no one right way to own or structure things. It would be prudent, however, to set up an agreement ahead of time, that in case the worst were to happen, all parties agree on how things will be handled. It's much easier to do when cool heads prevail and there is no party feeling wronged or disillusioned.

Whenever entering into an investment, consider what its purpose is, and if it were ever to be sold in the future, what outcome would best suit all parties?

Paula Straub
SaveGainsTax
KeepYourCapitalGains - Free Report
askpaula@savegainstax.com