When you’re ready to sell your business, one of the many things you’ll need to think about is capital gains tax. Remember, it’s not the price you get for the sale of your business; it’s what you keep in your pocket at the end of the day. It’s understandable if you feel that this is something you can’t avoid – after all, it’s a tax on proceeds from the sale of your biggest asset, right? But, there may be ways to minimize or even avoid paying capital gains tax altogether. So before you start planning your business exit strategy, it’s worth taking a closer look at your options.
What are Capital Gains on the Sale of Your Business?
The capital gains you realize can have tax implications when you sell your business. Capital gains are profits from the sale of assets, including companies. If you sell your business for more than you paid, you may have to pay capital gains tax on the difference. The amount of tax you owe will depend on several factors, including how long you’ve owned the business, your tax bracket, the percentage of the company you hold and whether you qualify for the lifetime capital gains exemption.
Ways to Reduce or Avoid Capital Gains Tax
When it comes time to sell your business, you will likely be faced with a capital gains tax bill. However, there are ways to minimize the amount of taxes you owe. One option is to donate to charity. This can help to reduce your overall taxable income and lower or eliminate your capital gains tax bill.
Another option is to take advantage of the lifetime capital gains exemption (LCGE). This allows you to exclude a certain amount from your taxable income.
Another option is to have your business sponsor an individual pension plan. This will help you qualify for the LCGE by purifying your business. It will also defer a sizable chunk of your business’ proceeds until a future date.
Finally, you can consider setting up a family trust. This can help to shelter some of the sale proceeds from taxes. By taking these steps, you can minimize the amount of taxes you owe on the sale of your business.
It’s Not What You Get; It’s What You Keep
When it comes time to sell your business, tax minimization should be at the top of your list of priorities. By planning and taking advantage of tax-deferred and tax-elimination strategies, you can minimize the tax hit on the sale of your business and keep more of the proceeds for yourself. In addition, careful planning can help you maximize your business’s value by maximizing the sale price’s tax-free portion. To maximize the selling price of your business, talk to business selling specialists like Eric Gilboord of Warren BDC, who will give you tons of ideas to prepare your business for selling and thus maximize the sale price.
Fear of Paying Taxes Preventing You From Selling Your Business?
When it comes time to sell your business, don’t let the fear of paying taxes stop you from achieving your goals. With some planning and advice from a tax professional, you can minimize your tax liability and maximize the return on your investment. By understanding the tax implications of selling your business, you can develop a plan that minimizes or eliminates your tax liability and maximizes the return on your investment.
Recently, I worked with an individual who bought a commercial property in 1982 for $400,000. Today, the value of that property is almost $25 million. He had a capital gain of $24,600,000 and a potential tax bill of $6,500,000! He hadn’t sold this property because of the tax he’d have to pay. We are eliminating this tax bill for him, creating an incredible legacy in his family’s name and ensuring his estate is left whole. So, don’t let the fear of paying taxes stop you from selling your business – with some strategic and careful planning, you can make the process much smoother and more profitable.
If you’re like most business owners, you’ve probably thought about selling your business at some point in the next ten years. It’s a big decision and one that should not be taken lightly. But with the proper planning and execution, it doesn’t have to mean paying capital gains taxes on the sale. There are many strategies you can put in place to minimize or even eliminate those taxes. Have you started thinking about what those might be? If not, now is the time. Talk to your accountant, business advisor and other professionals who can help guide you through this process. The sooner you start planning, the more options you’ll have available. And don’t forget – we’re here to help if you need us!