As a business owner, it can bean especially rude shock to see so much of your hard-earned wealth snatchedaway in taxes when you go to sell the business.
The tax bite is a bit biggerthese days, too.
So, whatever you can do toshelter the business sale from taxation can mean a world of difference for yourretirement and even for the whole family. Turns out there are more than a fewimportant tools at your disposal.
First, why is the tax bitebigger these days? The American Taxpayer Relief Act of 2012 (ATRA) befriended anew surtax added through Obamacare and this friendship brought the capitalgains tax up from last yearâ€™s 15% to 20%, or even a whopping 23.8% for someearners. But wait, thereâ€™s more.
An extra provision of ATRA isset to add yet another 1.2% as of the new year. Then add state taxes. It justadds up, and that is really bad math for you.
So what are some tools and waysto lessen the tax bite? Depending on your business, your needs, and yourtimeline, consider three tested tools discussed in a recent Forbes article titled â€œSelling Your Business? 3 Ways To Cut The TaxBite.â€
While you will want to read theoriginal 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 ascapital gains taxes) is to either find a way to defer the taxation until youleave assets to your heirs (to secure the capital gains eliminating stepped-upbasis), to fall under a discounted category, or to actually change the form ofthe business so as to skate right below that low ceiling.
There are a few more ways ofdoing any one or all of these steps cleanly and efficiently, especially withthose with the foresight to plan well in advance.
For more information on this and otherestate planning subjects, contact IdahoEstate Planning and schedule aconsultation. Remember,good planning is no accident.