Tax Strategies that Work*
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If you’ve been reading our articles for a while, you know that a business broker is a tremendous help with sourcing buyers confidentially, negotiating the right structure, assisting with due diligence, securing financing for the buyer, handling escrow, providing neutral closing documents, and helping everybody cross the finish line. But did you also know that we also introduce you to strategic partners that will help you keep more of your sale proceeds?
Taxes are a big consideration when it comes to selling your business. Proper asset allocation, earn outs, Qualified Small Business Stock (QSBS), seller financing, 1031 exchanges, Monetized Installment Sales (MIS), Deferred Sales Trusts (DST) and others are all valid instruments when used correctly to help provide tax strategies that can add up to big savings. For instance, let’s take a deeper dive into a Deferred Sales Trust:
Utilizing IRC Section 453 for an installment sale, the seller can achieve significant tax deferral benefits by not taking constructive receipt of the proceeds at the time of the sale. Instead, the proceeds are put into a dedicated trust which is professionally managed and is paid out to the seller over time in a way that minimizes their tax impact. The benefits are many:
- Flexible Payments: The seller can begin taking payments right away or delay them into the future depending on their individual tax situation.
- Liquidity and Diversification: The seller is taking a relatively illiquid asset (a business or commercial real estate) and converting it into a portfolio of liquid investments.
- Retirement Income: The seller can receive a stream of income for retirement based on the pre-tax proceeds from the sale.
- Generational Wealth: Keep more of the sale proceeds in the family, and potentially remove the proceeds of the business sale from the seller’s taxable estate. With additional estate planning, the surviving family members may also be able to avoid the delays and expenses associated with probate.
A DST will not be right for every seller, but rest assured that we have plenty of arrows in our quiver for helping you keep more of your money. It’s just one of the many reasons why talking with us early if you’re thinking about selling your business is an excellent idea. We will make the right introductions to the right advisors and experts to help you achieve your goals.
* This information should not be considered tax or legal advice