The most profitable tax planning is done prior to year-end. After December 31, all transactions are history. If you are anticipating a significant transaction like selling a business, tax planning must be completed early in the process.
Our income tax planning analysis enables us to use varying assumptions to obtain the most beneficial tax results. We will produce supporting schedules of income, deductions, and available credits and provide you with an analysis of various planning scenarios. The proposed sale of a business is a great example of the critical nature of tax planning. For the seller of a business, the tax consequences of a sale affect the after-tax cash flow as much as the selling price of the business. It is of utmost importance for the seller to know the after-tax result in order to determine a selling price.
Our Tax Planning Analysis Considers All of the Following:
- Asset Purchase – Round 1 – allocation of purchase price from the Buyer’s perspective. This scenario assumes the transaction is structured as if the buyer were to dictate the terms of the agreement. Under this analysis, assets are sold for their fair market value providing the buyer with a stepped-up basis in short-lived assets. Selling depreciable assets, inventory, and accounts receivable to a Buyer typically results in higher tax rates for the Seller.
- Asset Purchase – Round 2 – allocation of purchase price from the Seller’s perspective. This scenario assumes the transaction is also an asset sale, but makes some modifications to avoid bad tax consequences to the Seller. The key is the allocation of assets. Our analysis will show the most beneficial allocation to the seller (which is generally disadvantages to the buyer).
- Negotiation phase – It is very important to be able to understand the after-tax results for both the Buyer and Seller to structure the best deal for both parties.
- The Stock Sale – This analysis assumes the transaction is a stock sale. Stock sales usually offer the best structure for the Seller. The entire sale is capital gains to the extent of gain on the Sale of the business. Capital gains are presently taxed at the low federal rate of 15%.
- There are also special situations which require additional care and analysis. One example is the sale of a C Corporation. When C Corporations are sold, there is a layer of tax at the corporate level and another layer of tax at the shareholder level. Another example is the sale of a partnership interest where the partnership holds hot assets.
I sold my lawn care company in 2008 for over $1.5 million and was really scared about the tax consequences. I’m one of those people that don’t want to have to know every detail about financials of my company so I can focus on the work that needs to be done.
That’s why I’m still with Meredith & Associates; they are like having a CFO even though my company is family owned. I trust them to do everything possible to minimize my taxes every year and they have always exceeded my expectations.
I think the reason is all worked out perfectly is because they helped me setup my entity structure. It was in such an efficient way to minimize taxes and maximize my profit margin. I could have been in big trouble without their guidance.
— Greg O.
Contact us for more information about our tax planning services.