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THE IMPORTANCE OF TAX PLANNING IN A TRANSITION STRATEGY

February 2, 2017

A transition strategy, often times, is a once in a lifetime event. Not many times are you able to transition your business. Moreover, you will be part of a wealth transfer involving more capital than you have ever faced in your life. That being said, one very important aspect of any transition strategy is the tax planning - to identify which deal structure will be less affected by capital gains generated by the transaction.

For instance, a business sold for $10 million. The seller will be less affected by taxes if a part of this amount is seller-financed to the buyer for a period of five-to-seven years. Splitting the amount for a period of five years will allow the seller to deduct more expenses than he/she would be able to in just one year. Plus, usually operations of this nature are collateralized by fixed assets or shares of the business sold so default risks are mitigated.

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