Easing the Tax Bite When Selling Your Business in Virginia

Tax biteA lot of small business owners accelerated sales of their companies into 2012 in anticipation of the new higher tax rates for 2013, but for those who are thinking of selling now, don’t despair. “There are things you can do to minimize—or with the right set of facts—eliminate taxes.”

Is any of your personal wealth tied up in your business? Well, for some people, the business is their current life, both in time and wealth. Consequently, it can be an especially rude shock to see so much of that wealth snatched away in taxes paid upon the sale of that business.

The tax bite is a bit bigger these days, too.

So, whatever you can do to shelter the business sale from taxation can mean a world of difference for your retirement and even for the whole family. Turns out there are more than a few important tools at your disposal.

First, why is the tax bite bigger these days? The American Taxpayer Relief Act of 2012 (ATRA) befriended a new surtax added through Obamacare and this friendship brought the capital gains tax up from last year’s 15% to 20%, or even a whopping 23.8% for some earners. But wait, there’s more.

An extra provision of ATRA is set to add yet another 1.2% as of the new year. Then add state taxes. It just adds up, and that is really bad math for you.

So what are some tools and ways to lessen the tax bite? Depending on your business, your needs, and your timeline, consider three tested tools discussed in a recent Forbes article titled “Selling Your Business? 3 Ways To Cut The Tax Bite.” 

While you will want to read the original 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 as capital gains taxes) is to either find a way to defer the taxation until you leave assets to your heirs (to secure the capital gains eliminating stepped-up basis), to fall under a discounted category, or to actually change the form of the business so as to skate right below that low ceiling.

There are a few more ways of doing any one or all of these steps cleanly and efficiently, especially with those with the foresight to plan well in advance.

You can learn more about this topic as well as other strategies on our website under the tab entitled: business planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.  

Reference: Forbes (September 6, 2013) “Selling Your Business? 3 Ways To Cut The Tax

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