“There
are things you can do to minimize—or with the right set of facts—eliminate
taxes,” says Timothy Jessell, a tax lawyer with Greenberg Traurig in Tysons
Corner, Va. whose client base is people buying and selling companies. In one
case, a client who is selling his consulting company will save $3.8 million in
taxes “simply by filing a piece of paper,” he says.
As a business owner, it can be
an especially rude shock to see so much of your hard-earned wealth snatched
away in taxes when you go to sell the business.
The tax bite is a bit bigger
these days, too.
So, whatever you can do to
shelter the business sale from taxation can mean a world of difference for your
retirement and even for the whole family. Turns out there are more than a few
important tools at your disposal.
First, why is the tax bite
bigger these days? The American Taxpayer Relief Act of 2012 (ATRA) befriended a
new surtax added through Obamacare and this friendship brought the capital
gains tax up from last year’s 15% to 20%, or even a whopping 23.8% for some
earners. But wait, there’s more.
An extra provision of ATRA is
set to add yet another 1.2% as of the new year. Then add state taxes. It just
adds up, and that is really bad math for you.
So what are some tools and ways
to lessen the tax bite? Depending on your business, your needs, and your
timeline, consider three tested tools discussed in a recent Forbes article titled “Selling Your Business? 3 Ways To Cut The Tax
Bite.”
While you will want to read the
original article, here are the three ways:
- The ESOP Plan,
- The Qualified Small Business Stock Plan, and
- The C-to-S Corporation Conversion Plan.
Essentially, the plan (as far as
capital gains taxes) is to either find a way to defer the taxation until you
leave assets to your heirs (to secure the capital gains eliminating stepped-up
basis), to fall under a discounted category, or to actually change the form of
the business so as to skate right below that low ceiling.
There are a few more ways of
doing any one or all of these steps cleanly and efficiently, especially with
those with the foresight to plan well in advance.
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Reference: Forbes
(September 6, 2013) “Selling Your Business? 3 Ways To Cut The Tax
Bite”