Monday, July 07, 2008

Making the Tax Bill More Bearable When Selling A Business - Option 2

So, you’re selling your business and have received the shock from your CPA of how much of the proceeds will be passing directly to Uncle Sam if you don’t implement a tax saving strategy prior to sale.

Depending on the type of business you are selling and where it is located, this amount could be between 15-50% and is usually on the higher end of that range.

In the last article, the Self Directed Installment Sale was outlined and now another option will be presented. There are so many variables involved with each sale, there is never any one size fits all “best” option. It is important to work with someone familiar with all options available, so each can be compared and considered for your unique circumstance.

If you have the need for an immediate tax deduction, perhaps to offset other gains or simply in exchange for contributing to a non-profit close to your heart, consider a Charitable Installment Bargain Sale (CIBS). Don’t confuse this with a Charitable Remainder Trust (CRT) because you are not pledging the asset to charity on your death.

In essence, you notify a participating non-profit 501(c)3 corporation that you will do a CIBS and find a buyer for your business. You negotiate the sales price using a fair market value. You donate a percentage of the FMV to the charity and they buy the asset from you at a discount and sell to your buyer in a simultaneous close for the agreed upon price.

You receive a tax deduction for the amount donated and partial tax forgiveness on the allocated tax percentage for that donation. The remainder of the proceeds is returned to you over time with interest via an installment contract between you and the non-profit.

You have the advantage of paying the taxes as you receive the payments and have the compounded tax benefit of the money that would have gone directly to pay taxes earning interest for you over many years. You determine when the payments start and how long they will last.

There is a non-profit corporation set up to handle this for you, and the program is flexible enough to be offered through any established 501(c)3 that would like to become involved and receive the donation. There is a bonded and insured independent 3rd party administrator tasked to make the payments, invest the funds and send out the necessary tax documents so the non-profit does not have to have a department set up in house.

As with the Self Directed Installment Sale, if you pass away before receiving all the agreed payments, the remainder passes to your designated beneficiaries. The costs to set up the CIBS are very reasonable, as the non-profit absorbs the legal fees for the bargain sale.

To summarize, the benefits are tax deduction, partial tax forgiveness, tax deferral and the ability to transfer some of those tax dollars to a very worth cause.

For more information and to see if this is the right option for you, contact Paula Straub of Save Gains Tax LLC at 760-917-0858 (8am to 5pm PST) or email Paula at to set up a complimentary consultation.