Making the Tax Bill More Bearable When Selling a Business - Option 1

Hopefully, before selling a business, you meet with a CPA or tax accountant and get an estimate on how much of your proceeds will be going directly to Uncle Sam if you pay them in a lump sum at time of sale. You don’t want to save this surprise for after all is said and done, because not only will it most likely be a shock, but you will have given up your chance to do anything about it.

Planning is everything. For this article I will assume you are not doing a 1031 business exchange, that is selling your business and buying another similar business taking into consideration all the IRS guidelines and timelines. It’s pretty rare to see this, but it can defer all of your capital gains tax if done correctly.

Depending on how the business is sold, the gains may be taxed as long term capital gain, short term capital gain, ordinary income, etc. and if you are selling an asset in a C-Corp you may face double taxation. So, the idea is to minimize your tax bill and maximize your proceeds no matter what situation you are in.

One option is with a Self Directed Installment Sale. The structure must be in place before the buy/sell agreement is signed. The gist is to receive the sale proceeds in installments and only pay capital gains tax as you receive the income. This has the effect of allowing the majority of money you would have paid immediately in taxes to continue earning compounded interest for you for many years, thus increasing your bottom line by a significant amount.

The details are a bit too complex to fully outline in a short article, but both an LLC and a Trust are created for you and set up meet IRS criteria for favorable taxation of installment sales. Your asset gets transferred to the LLC prior to sale, and your buyer purchases from your LLC. The trust buys the shares of your LLC from you via an installment agreement and you pay taxes on your gain only as you receive the payments.

You, the seller, are able to control when the payments begin and how long they will be spread out. This allows for maximum flexibility to control your income, and plan for future tax savings as well. Since your buyer paid cash in exchange for your property, you are not dependent on them to make the installment payments and you have transferred the risk of refinance or default. This is done by using an independent third party administrator and your money is safely invested in a principle protected insurance product to be used solely for the purpose of paying the installments.

If you pass on before receiving all of the payments due, the remainder of the installment payments pass to the beneficiaries of your choice.

Seeing an example of a taxed sale vs. a Self Directed Installment Sale side by side will show you how much of a difference in overall return this strategy will provide. This can make the process of the sale more palatable and provide a dependable income stream for retirement.

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 savegainstax@gmail.com to set up a complimentary consultation.

How To Get the Greatest Return on the Sale of Your Business

If you are thinking about selling, or already have your business up for sale, you don’t want to make any crucial mistakes that will cost you big time.

Most business owners only sell one business in their lifetime. The results of this sale have a major impact on the financial future of the family. You may be an expert in business development, but totally in the dark about most aspects of the best way to sell.

A colleague of mine, Dave Kauppi makes his living helping business owners get the maximum return from their business sales. He has extensive knowledge of the mistakes made by owners attempting to handle the sales process without professional help and can make sure your business is not a victim of unintended financial disaster.

Dave publishes the Exit Strategist Newsletter. It contains a wealth of useful advice to help guide you through your business sale. The subscription is complimentary and I urge you to sign up on his website.

Go to www.midmarkcap.com/exit and start learning how to reduce taxes, put together creative deal structures, perform valuations, employ buyer negotiation tactics and much more.

You owe it to yourself to learn how to structure your business sale to your own advantage and have a place to turn when you need some help. Wouldn’t you rather learn from the mistakes of other business sellers instead of being the one to suffer the consequences?

You can also reach Dave directly by calling 630-325-0123 or emailing him at davekauppi@midmarkcap.com .

Paula Straub
www.savegainstax.com
savegainstax@gmail.com
760-917-0858
Fill out a Confidential Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html

Listen to my weekly radio show “Simply Wealth” at www.webtalkradio.net

Business Lending- Have Funds Dried Up?

The last post was on how the tightening credit market is affecting sellers of residential real estate. Now here is what I am seeing regarding commercial financing for business purchases.

I have several clients in various stages of selling their businesses. The reasons for sale vary from retirement to having an offer come from out of the blue, to exiting one business to begin something new.

I am seeing requests for due diligence become longer than in the past, and I believe in some circumstances this is in part because it is becoming more difficult to raise the necessary capital to complete the buy.

In one incidence, an employee wanted to purchase the business from her employer. The business was successful, she had the right experience and skill to run it, and it had been established in the community for 26 years. She had good personal credit, but she was unable to find any lender to issue the funds. There have been two other parties interested in the three months since, but none have come forth with the capital to date.

Another case finds a younger owner who was approached by a large corporation with a proposal to purchase his successful business which he began about 10 years ago. The offer was so strong he couldn't refuse and the purchaser promised a sales contract within a couple of weeks. That was 4 months ago. Every time I check in, the buyer is still interested, but is saying they are taking longer to get the funding together than expected. They have provided some earnest money, but being in limbo is very frustrating.

There are still plenty of buyers with existing capital to make business purchases, and I believe the sales in the examples above are going to happen, just not in the time frames that were initially outlined.

There will always be transactions happening. A bit more patience is now often necessary.

Next: Selling stock portfolios

Paula Straub
760-917-0858
www.savegainstax.com

Fill out a Qualification Questionnaire to find out if you qualify to save capital gains tax.
http://www.savegainstax.com/qq.html

Dismantling a Business Isn't Always Easy

When people come to me to help them minimize their tax burden upon selling a business, they often don't have a clue what tax consequences await them.

Every business is different, but here a some of the factors that determine how much tax will be owed. It can become quite complicated, depending on the business structure, the assets of the business, the parties involved in the sale, etc.

• What entity structure does the business have? C-Corp, Partnership, S-Corp, LLC, Sole Proprietorship, etc. Each entity is taxed differently with different rules
• Who are the owners/partners/shareholders/members, etc. and how is ownership divided?
• What is the sale comprised of? Assets, inventory, real estate, client list, good will, etc.
• Will the entity be shut down on sale or remain intact?
• Do all of the partners agree on sales terms and goals?
• Will the sale be broken down by types of assets, or sold as shares of the company?
• If real estate, when was it purchased, how much debt is there, what is adjusted cost basis, how is the property titled, how much has it been depreciated and by what methods,etc.
• If the sale is within the entity, how do you plan to get the proceeds back to the owners from the entity? Will you get doubly taxed as capital gains and then income tax?

When a business is started and is growing, usually little thought is put into how it will eventually be sold, dismantled and distributed. It can get very complex, but an exit strategy is crucial to maximize return. The sale is often for retirement income, and it can be a very rude awakening to find out when it is too late that the money actually kept will not support you as you had hoped.

This is an area you probably don't want to take upon yourself without help from experienced professionals who can guide you to the best outcome possible.

Paula Straub

760-917-0858

Fill out a Qualification Questionnaire to determine what capital gains tax strategies will help you most.