Can you control the Taxes on the Sale of your Business?
We’ve all heard the phrase, “It’s not what you make, it’s what you keep that counts!”
This can apply to the amount of money you have left in your pocket after you pay all the expenses associated with the sale of your business. These business sale expenses typically include fees and taxes – and the fees are nothing compared to the taxes you’ll pay upon the sale or transfer of your business.
While you are building your business, your focus is on growth, sales, production, cash flow; all the issues that go with owning a business. Over the years, you grouse about taxes but you pay them and go on running the business.
Eventually, you begin to think about what’s next for you.
Life should not be all about work and stress; your thoughts turn to your future well-being and that of your family. This is natural – although it may make you feel a little guilty at first because for most of your life your primary focus has been on your business and all that is involved with its success.
You begin to discuss your options for the future with your advisors and just as you begin to get excited about the possibilities the future holds for you…the bomb drops.
Your silent partner, the one you hadn’t realized you had, the one who hasn’t invested an ounce of time or effort in the business nor a dime in its success, demands its cut of your profit. Your partner, the government, demands its cut- taxes on your business sale!
When the amount of these taxes is calculated, you get a queasy feeling which quickly turns into rage. That’s way too much money! You’ve worked all your life building your business and those #@#$%’s are going to take how much?
In your accustomed managerial style, you direct your advisors to find a way to reduce the amount of taxes due on the sale of your business. “Make it so!”
Unfortunately, it is too late to do any meaningful planning or to implement a strategy to reduce the taxes on the sale of the business. You’re stuck!
Look at the issues that you, the seller, face now because of your failure to plan.
These are just a few that come to mind, I’m sure you can think of more:
- Proceeds of the sale are taxed twice due to the election of an incorrect corporate designation: C vs. S corporation.
- You realize that the net proceeds from the sale of your business won’t be enough to sustain the lifestyle you had hoped to enjoy after retirement.
- Given #2 above, you decide to continue to operate the company, but your enthusiasm for the business wanes and with it, the value of the business.
- You find out that your company owns assets within the operating corporation that would have been better owned outside. This would have reduced the purchase price of the business and the resultant tax liability.
Take some advice from one who has been there and has seen others in the same predicament:
If you plan to sell or transfer your business in the next 3, 5,
or even 10 years,
start the conversation with your advisors TODAY!
Your failure to start this planning today may cost you a lot of money and personal freedom tomorrow. Remember: It’s not what you make… it’s what you keep!