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Business Sales: A Better Way

Bill High

Bill High

September 28, 2017

In 2016, Americans sold 7,842 businesses—whether through asset sale or stock sales.

That number is expected to go up in 2017.

Why so many sales?

Business sales are skyrocketing for a number of reasons. A robust economy and thriving businesses have raised sale prices to an all-time high. Additionally, as business owners age, they want to retire and move on to the next adventure. Low interest rates and a favorable financing environment also contribute heavily.

Many of these sales will occur at year end. But they shouldn’t.

Let me explain. Most business sales occur without consideration for the tax consequences. The tax bill is merely calculated and then offered up as a pain point that is part of the sale.

But there is a better way.

If a business owner donates company stock into a donor advised fund in advance of the sale, they receive significant tax benefits. (Note, however, that the donation must occur prior to the sale and prior to a signed purchase agreement.)

What are the benefits?

The owner can donate the stock at fair market value. (An appraisal is needed.) That donation can be used to offset ordinary income tax. Further, for all the stock donated, the donor pays no capital gains tax on that stock. Plus, the donated stock is no longer part of a taxable estate.

Once the donation is complete, the sale process will continue just as normal, but at the time of closing, the buyer will write an additional check to the owner’s donor advised fund. From there, the owner can give away those proceeds all at once, or over time and even treat the fund as a family foundation.

Here’s the punch line: typically when an owner pursues the charitable donation route, they end up in the same position. Except for the fact that they paid less tax and will be able to give far more.

That’s why you stop a business sale—to help an owner achieve a greater end—the completion of the sale but also the opportunity to impact the world through their giving.

About Bill High

Bill High

Bill High is the Founder of The Signatry. His mission is to empower families in building multi–generational legacies of generosity. Bill works with families, individual givers and financial advisors, with expertise in guiding business owners looking to sell or transition their business to the next generation.

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