Not planning for Capital Gains?
Will it cost you too much to Sell?
Don’t you think it’s odd that you’re the one bringing new ideas and tax strategies to your accountant? Here at Tax Strategy Pro, we regularly get the question, “Why doesn’t my CPA know about this?” Simply put, there are 70,000 pages in the United States Tax Code, and only about 30 pages are dedicated to actually paying taxes. The other 69,970 pages are how to legally avoid paying taxes. Many CPA’s deal with just a few major asset and capital gains issues in their career. Tax Strategy Pro is in conversations each and every day with people that are selling appreciated assets.
Most CPA’s are doing their job at keeping you compliant and on time, but are not forward looking strategists. It is like asking a Life Insurance Agent for help on your Auto Insurance. Tax Strategy Pro can help you solve the taxes triggered by the sale of a highly-valued residence, investment property, a closely-held business or other qualified capital asset. Even if you are in escrow or are struggling with a 1031 exchange that may soon fail, it may still be possible to solve the tax problem while maximizing your profit when escrow closes.
Don't take our word for it, Look at these recents success stories!
The owner of a Convenience Store wanting to sell his business for $3.3 million soon discovered from his CPA that he would be responsible to pay more than $1,000,000 in federal and state taxes. This would leave him with just over $2.3 million when escrow closed. He decided to halt the sale of his business until he found a solution to the tax problem.
Two planning solutions were identified that would solve the tax problem and maximize how much he receives at close of escrow. The first planning choice allowed him to lawfully defer the taxes and receive more than $3 million as compared to what he would otherwise have gotten after-tax. His second planning choice eliminated the taxes entirely, saving $1,320,000 in capital gains taxes, and giving him tax-free more than $3 million after close of escrow and allowing him to create a Wealth Replacement Trust for his beneficiaries.
C-Store Owner, West Virginia
A dentist wanted to sell his practice, an S-Corp, for $2 Million. Without planning, he would have to pay nearly $550,000 in taxes and would receive at close of escrow $1,450,000 after paying the costs of the sale
The doctor sells the S-corp as a stock sale, and receives $1,866,000 in distribution at close of escrow, that is over a 30% increase above conventional planning strategies. Before meeting with TSP, he was told to just pay the taxes.
Dentist, South Carolina
Some Of Our Strategies that allow you to legally, ethically and morally reduce capital gains...
How to pay little to no tax (even on millions of capital gains) by using a simple but time sensitive strategy (many times this is the only strategy that you’ll need).
Selling an appreciated asset can be a real exciting time until you hear about how much Uncle Sam is going to take. Capital Gains are almost voluntary with the number of strategies you have at your finger tips, thanks to the Internal Revenue Code.
How to avoid turning over up to fifty percent of your real estate gains to the government and why your tax is way more than the twenty percent long term gain you are planning on.
It is not about the one transaction, Tax Strategy Pro often finds ways to use TIMING, COMBINING AND SEQUENCING strategies to hedge against big capital gains using other tax situations in your life.
What type of entity structure to use for maximum asset protection (almost all ultra high net worth real estate investors use this same structure)
With over twenty-three strategies to reduce your capital gains taxes, your time will be spent with a Tax Strategy Pro Strategist focusing on your goals and objectives so that the strategy you use will get you closer to where you want to be.
maximizing your profit
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Just a few strategies
There is no way to introduce you to all the varied ways to divest yourself of an appreciated asset without paying capital gains and other fees on one website. Tax Strategy Pro has years of experience in helping business owners and investors exiting their appreciated assets in ways that align with the goals and objectives of you the client. While many service providers go back to the same well because that is what is familiar or pays the most to implement, Tax Strategy Pro takes the path that if we do what is right for you, then you will become friends and introduce us to your friends.
Imagine you want to leave your appreciating asset or business to your beneficiary and you have five or more years until you step out of the ring. What if your business could create a tax free retirement fund for you and your spouse, and at the same time increase your business’s EBITDA? This is one of Tax Strategy Pro’s Founders favorite tool in the tool box for buying out a partner or leaving your business to the kids or favorite employees.
Bypass Capital Gains and depreciation recapture on appreciated asset, increase income for life, and get an immediate deduction. Capital Gains are voluntary; Income Taxes are voluntary; and the IRS will allow you to be charitable without disinheriting your family by using these legal, ethical and moral trust strategies. But you are not charitable? Keep in mind that you are going to be charitable either in paying your taxes or choosing to send your capital gains to the charity of your choosing.
How to Secure a Lifetime Income, Save Taxes, and Benefit a Charity
A current income tax deduction may be obtained by creating a qualified living lead trust for a term of years. Property is transferred to the trust and a selected income amount is paid to charity for the chosen number of years. After all income payments have been made, trust principal plus any accumulation is returned to the original owner. This strategy works great for Restricted Stock Units or Appreciated Stock.
Income Tax Charitable Deduction
When this grantor lead trust is funded, there is an income tax charitable deduction for the current value of the income which will be distributed to charity. This deduction is taken in the year of the transfer to the lead trust. Under current tax laws, the trust donor receives a current deduction even though he or she will receive the property back again after the term of years. However, the donor must report all trust income, even the portion given to charity, as taxable income on his or her income tax return. Since this income must be reported, many grantor lead trusts are funded with tax-free municipal bonds. If the income distributed to charity is from the tax-free bonds, reporting it on the donor’s tax return generally does not affect his or her taxes during the term of years. Alternatively, some grantor lead trusts are funded with appreciated stock. In this case, there may be some recognition of capital gain during the term of the trust.
High Income Year
Living lead trusts with property eventually returned to the original owners are especially attractive for persons who have a large current income and anticipate lower income in future years. A regular charitable giving pattern can be maintained while gaining maximum benefit from the charitable deduction during the high income year.
Property Transfer Back to the Donor
A qualifying grantor lead trust with the donor as remainder beneficiary is an excellent method for giving to charity without permanently releasing title to the property transferred to the trust. A donor gives up only the right to income for the selected number of years. After the term of years, all trust principal and accumulated income is returned to the donor. A living lead trust combines a current deduction with gifts to favorite charities and still allows the donor to retain his or her property.
This is one of the most amazing strategies that nobody has heard about. Imagine the IRS giving you the opportunity to use your tax money to invest for the next thirty years!
For some, this will be the best value of the TDCO
strategy. Instead of having to replace a property with a like-kind
property, one can take the proceeds and invest it how they
desire. They have two options: business or investing in a financial
vehicle of choice (mutual funds, CD’s, stocks, annuities, etc).
For example, let’s say that an investor has multiple properties.
They have leveraged debt on every property to increase their
portfolio. One of their properties happens to be a highly
appreciated property. They sell it and use the resources to pay
off debts on other investment properties. That would be
considered business use. Now, they have less debt.
The investor could choose to buy a much lower priced property
in another market and put the balance of the funds in a financial
investment vehicle of choice.
They can start any kind of business venture that they would like.
They have options!!
In many cases, owners of investment
properties no longer want to own those properties and deal with
the challenges that come with tenants, laws, and so on. As we
like to say, they don’t want to deal with the “tenants, trash, and
toilets”. They’d like to “retire” from being a landlord. With a 1031
Exchange, you stay a landlord! With the TDCO, the owner can
sell their investment property and invest it into other financial
vehicles that can create passive income from the growth. They
might also choose to invest in other passive income business
opportunities. They have options!
No Pressing Time Tables
Let’s face it, now is a great time to sale but a difficult time to find an exchange property. What if you could sell now and wait for the market to become more favorable to you the buyer? With a 1031 Exchange, the investor needs to identify up to 3 potential replacement
properties within 45 days and close one or more of the identified
properties within 180 days. This works great if the market is great
for buyers. But, what if the market is not doing well and there are
not enough good properties to choose from? What if there are
multiple offers on every property? There is always that big “what
if”. I’ve met too many people that basically said “had I known I
was going to end up with this property, I would not have sold the
last one.” Tragedy.
A common issue with these requirements is loss of negotiating
power. When an investor is required to meet these deadlines, they may have to
offer more on an identified property because they may be
competing with other buyers to purchase it.
With the TDCO strategy, there are no replacement time
requirements. The investor can take the time needed to find the
right property, the right fit, the right market, and without time
pressures. If it takes 1, 2, 3, or more years, that is okay!
Rescue a Failing 1031
Many 1031 Exchanges fail due to the above mentioned 45/180 day restrictions not being
met, for many reasons. When that happens, Uncle Sam will be
asking for that tax money the following April. Yes, another
With the TDCO strategy, as long as the 1031 Exchange
Accommodator will cooperate and release the funds to the TDCO
strategy, then the “failing” exchange can be rescued BEFORE it
fails. It cannot be used to rescue an already failed exchange.
Then, the taxes are deferred for decades as long as the investor
follows the TDCO investment guidelines. Tragedy avoided!!!
Note: not all 1031 Exchange Accommodators cooperate with
Capital Asset Dealers by releasing the funds to another strategy.
No Replacement Loan
In a 1031 Exchange, the investor is required to replace the debt on the previous
property with an equal or greater debt on the newly purchased
property. In some cases, this could present a problem if the
investor finds out that their credit is not as good as they thought
it was and now either don’t qualify or have to pay higher interest
rates than they thought.
With the TDCO strategy, the previous debt is not required to be
replaced. That is because the TDCO loan IS the replacement
debt. One can simply pay off the debt and invest the balance of
the resources as they desire.
This section could be a whole article by itself so I’m going to keep it as simple as possible. In 1031
Exchanges, the depreciation schedule starts with the purchase of the first property. It ends 27.5 or 39 years after that purchase, depending on the type of property it is. That time clock continues to run, without resetting, with purchases of new properties
through a 1031 exchange. The only increase in depreciation is
any increase in value from the sale of one property to the value of
another, with a new schedule on that increase. Any gains during
ownership cannot be depreciated.
With the TDCO strategy, the investor sells their investment
property and defers the capital gains and straight line
depreciation taxes for decades. They stop the 1031 exchange
chain upon the sale of that property. When they purchase a new
property, they will start a whole new depreciation schedule (27.5
or 39 years) based on the full depreciable value of the newly
acquired property. This can be a significant tax advantage!
Most of the time our Tax Strategy Pros can find other situations going on in your financial life and actually hedge a strategy. One of the nicest things about this type of strategy is the low cost to implement the strategy because we are using items already at play in your current tax situation.
What Is Income Shifting?
Income shifting, also known as income splitting, is a tax planning technique that transfers income from high to low tax bracket taxpayers. It is also used to reduce the overall tax burden by moving income from a high to low tax rate jurisdiction. There are so many options in this strategy that it alone could create an entire business brokerage entity.
- Income shifting is also referred to as income splitting.
- This tax planning technique helps transfer income to lower tax brackets.
- One common example of income shifting is shifting unearned investment income from a parent to a child.
Breaking Down Income Shifting
Probably the best-known example of income shifting is the shift of unearned investment income from a high tax bracket parent to a low tax bracket child. Often this transfer is by a trust under the Uniform Transfers to Minors Act (UTMA) or in the form of a gift under the Uniform Gifts to Minors Act (UGMA). These parent-to-child income shifts must now conform to the restrictions of the kiddie tax enacted to curb this tax loophole.1 2
High to Low Tax Bracket Income Shifting
Upper tax bracket, family business owners may shift income from business earnings distributions to low tax bracket relatives by hiring these relatives to work for the business and paying them salaries. The salaries are deductible as business expenses if reasonable in amount and for work performed.3
Loans at no or below-market interest, sale-leasebacks or gift-leasebacks, can also be useful, as can life insurance and annuity policies. These various vehicles are subject to the risk of imputed interest or gift reclassification.4
Family business owners can use these income shifting tactics alone or in combination with income splitting to family limited partnerships (FLPs). In this manner, the business owner transfers business assets to FLPs and then sell, gift outright, or in trust, FLP interests to lower tax bracket relatives.5
Income Shifting from Tax Inversion
Tax inversion is a conventional technique utilized to shift income from high to low tax jurisdictions. Individuals accomplish tax inversions by transferring income-producing assets to non-grantor trusts formed and residing in low tax states. Businesses may also achieve tax inversions by merging with foreign companies in low tax rate countries and then parking earnings offshore. Examples of inversion to off-shore, low tax countries include Apple, Nike, and Pfizer. 6
If your business is a C corporation and you plan ahead, you can sell your business to your staff through an employee stock ownership plans (ESOP). The ESOP is owned by employees (find more information about ESOPs from the IRS). From an owner’s perspective you have captive buyers and don’t have to search around. You set a reasonable price for the sale and receive cash from the ESOP. You can then roll over the proceeds into a diversified portfolio to defer tax on the gain.
You can also use ESOPs for S corporations, but the deferral option for an owner doesn’t apply. Revoking an S election in anticipation of a sale is something to consider.
Owners who realize capital gains on the sale of their business have a way in which to defer tax on that gain if they act within 180 days of the sale. They can reinvest their proceeds in an Opportunity Zone (you go into a Qualified Opportunity Zone (QOZ) Fund for this purpose). Deferral is limited because gain must be recognized on December 31, 2026, or earlier if the interest in the fund is disposed before this date. Holding onto the investment beyond this date can result in tax-free gains on future appreciation. An owner who sells his or her business doesn’t have to put all the proceeds into a QOZ, but tax deferral is limited accordingly. Find details about Opportunity Zones from the IRS.
Here are some FAQ that might interest you
My CPA says that all these strategies will get me audited?
Truth be told you are less likely to get audited using strategies that are approved by the IRS than trying to reduce your taxes by typical methods used by entrepreneurs. Always make sure your strategies come with the proper documentation and your strategies are sound.
Why have I not heard of any of these ideas before?
Take the 1031 Exchange for appreciated property, everyone has heard of that strategy and it is effective for the first couple of real estate flips. After that, you are off to the races and your taxes just keep mounting up in the future. Sooner or later the 1031 is not the answer so where do the real estate investors turn? New tax strategies, like the ones Tax Strategy Pro uses.