Paying too much tax selling a business
Are you paying too much tax? This could be too much business or too much personal tax. When talking about good strategies to limit the amount of tax the owners or the business has to pay, there are three issues to consider.
The first issue, which tends to be the most obvious but also the most difficult, is to encourage business owners to take advantage of solid tax planning. The demands of owning and operating a business especially during a difficult economy does not seem to provide a good Return On Investment for the time or money it may cost to find out the best direction to go. By avoiding good tax planning can in turn mean the business pays more than its fair share of tax at both the business and personal level and that does not make a lot of sense.
Any good tax planning strategy and therefore the second issue to consider looks at the legal structure of the business. With the wrong legal structure, the business owners or shareholders may fail to structure the business to reduce taxes but also protect both the business and personal assets.
The final issue, which generally gets little attention, is taking advantage of the tax code. The goal of doing this is to minimize the tax exposure of the owner and to do this by understanding the implications through Estate Plans and any potential disasters this may cause the heirs following an event which incapacitates or involves a loss of life.
If these three issues make sense, one of the services we offer is a complete assessment of the business or a Business Assessment.
A part of the Business Assessment is to look at the impacts of tax both on the business and for the individual shareholders. In this look, we use two perspectives; one for the everyday operation of the business and shareholder compensation, and secondly, the transactional tax implications at the time of sale or close of escrow.
Within the Business Assessment, we present a tax savings and exposure illustration to each individual shareholder demonstrating the amount of money, within a range; each party is overexposed or could save. The range given is due to a variety of planning initiatives each party will have the choice to implement, choose all the initiatives and the savings will be at the top end of the range, choose some of the initiatives and the savings will be less.
The savings are broken down into three specific categories. First, the one-time catastrophic savings put in place with asset protection and estate planning. Secondly, a first year savings that focuses on taking advantage of opportunities in the tax code to provide shareholders with additional compensation, fringe benefits, and retirement funding. Finally, a first five years savings which holds the complexities of all strategies possible compounded for a five year period.
If selling the business is an event that may happen within the next three years, the Business Assessment will break down the tax imperatives of a sale and allow a discussion to understand how to minimize the taxes to pay; specific to the current legal structure of the business.
It’s worth noting; even the transfer of ownership from a parent to a child has immense tax implications let alone the actual sale of the business. The role of the Business Assessment is to demonstrate the exposure and savings range possible with the appropriate structuring of the transaction to sell or transfer the ownership of the business.
If you would like more information about a Business Assessment including a sample report, please give me a call on 916 570-2674 or send me an email; Andrew@rogersonbusinessservices.com
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.