Selling Your Business? Don’t Miss the Tax Savings Opportunity

Are you selling your business?

In the next 10 years, it is anticipated that $4 trillion dollars of business sales will take place. Why? It’s pretty simple from a demographic perspective.

Currently, the median age of the Boomer Generation is just over 50 years of age. As the Boomers near retirement, they are selling their businesses. So in the next 10 years—maybe 15—we’ll see a lot of businesses sell.

As those businesses sell, the Boomer needs to consider the options. All too often, we see business people surrounded by the lawyer they started the company with—the local guy down the street who provided the incorporation work. Or it might be the accountant who kept the books.

But the act of selling a business often needs a new expertise. Specifically, at the time of sale there is a great opportunity to reduce or avoid capital gains taxes in favor of charity. As an aside, the opportunity to give to charity is often one of the reasons the Boomer went into business—to do some good.

So what’s the opportunity? Consider Joe. He sold his business for $5 million dollars, but because he did no tax planning in advance, he paid over $1 million in capital gains tax (15% federal + 6% state — another aside, those rates are likely to go up under the current administration’s proposals).

On the other hand, consider Steve. He sold his business for the same $5 million. Steve donated a portion of the stock of his company before the sale to a donor advised fund (which many call a foundation) along with a charitable trust. Steve’s next tax liability was effectively zero. In addition, Steve has an ongoing income stream that he and his wife will live off of during their retirement years.

What’s the difference? Use charity in your tax planning. You must also donate shares of the company prior to the purchase agreement being signed. This kind of advance tax planning must occur well before the sale—not just a few days prior.

It’s your option. Pay the government or redirect those dollars to charities of your choice. If you have questions, please feel free to email me anytime.

William High is president of Servant Foundation. whigh@servantchristian.com

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