BTS consults with business and real estate sellers to educate on the transition process and tax mitigation options available for their specific transaction. While ultimately transition assistance and tax mitigation is BTS primary business, without education on options no informed decisions can be made. Significant educational material and situation specific consultations are also available on profitability and its influence on valuation, as well as discussing cognizance and implementation of the many of the other factors which may influence a business valuation. Sale structure is another important topic, with the type and structure of sale significantly influencing taxes on the transaction, feasibility of the transaction for the buyer, financing requirements, employment requirements and tax mitigation capabilities. Integration of the existing advisors and the potential need for specialty sector or transaction experts, brokers, lenders, CPAs, attorneys, valuators, consultants and financial planners is also likely. A business sale transaction is a haven for transaction, family, financial, estate, and tax planning.
Planning a business sale transaction tends to be all-encompassing. Done correctly, it is an integration of seller financial, tax, personal, family, and estate planning. Common BTS planning opportunities include structuring business sales through installment notes (LLC, trust, subordinated, seller) which can defer taxes until receipt of the principal and provide significantly greater income (typically 25%-50%) over the time of the deferral. IRS section 1031 and 1033 real estate exchanges are also an opportunity for tax deferral and significant estate planning. BTS assists on planning 1031 exchanges of business real estate, investment property (apartments, retail, office, industrial), vacation property, land, natural resources (timber, oil and gas interests), and fractional interests in properties. BTS also plans IRS section 721 exchanges, which commonly are mergers of businesses as part of a tax-deferred succession plan or a contribution of real estate properties to a REIT. BTS assists in structuring sales to partners or associates as part of succession or partnership plans in manners which are tax efficient to the seller and tax favorable to the buyer. BTS also works with sellers who have business or partnership life insurance (which may not be necessary after a sale) to rollover via a 1035 exchange on a tax-free basis into appropriate personal life insurance policy (with or without further premiums), a personal long-term care policy or a retirement annuity.
Integration of the final business transition plan with the existing financial, family and estate plan of the seller is a key component of any transaction. Many times the sale of a primary business dramatically changes the financial circumstances of a business seller, as he may now be retiree instead of owner. This changes most financial objectives and assumptions going forward. Tax mitigation techniques will need to be integrated with the current tax planning done by the CPA of the seller, and education of the seller’s current advisors is usually required. Cash and tax deferred sales proceeds will also need to be integrated with the financial and retirement distribution plans from their existing financial advisor, and these plans commonly need to be changed because of the significant change in financial circumstances, investment objectives, and risk profile of an individual who is no longer a business owner. There is a huge opportunity at the time of a business sale to enhance family distribution options and estate planning techniques to minimize taxes and include beneficiaries on income or assets. Integration of tax-deferred techniques with the seller’s attorney, CPA, financial planner and business broker is routine.
Administration of tax-deferred transactions is occasionally required. Because of the extensive background in tax-deferred transactions, BTS occasionally serves as a trust protector for trustee oversight of trusts created related to installment sales. Additionally, BTS may serve as a co-manager of (along with family members) or consultant to LLCs created for installment sales to ensure compliance with the terms of the sale and the related installment obligation. Entities which Dr. Ackerman has licensing relationships (securities Broker/Dealer, Registered Investment Advisor, real estate brokerage, appointed insurance companies) routinely also participate in implementation and administration of plans and/or investments after a transaction is consummated. The overriding objective is a transaction which maximizes the financial gains to the seller in the most tax compliant manner, and an administrator helps to ensure that this primary objective is closely followed for the benefit of future planning and tax compliance through potentially multiple generations.
Medical Business and Real Estate Sale- A brokered sale of veterinary/dental practices and real estate with taxes deferred on approximately 95% of the total proceeds. The practice building was 1031 Exchanged into a diversified portfolio of income producing properties. Property purchases included diversified property portfolios, single-tenant triple net leased properties, rental vacation properties, land, to additional practice buildings. The goodwill allocation of the practice sale was sold through an LLC or trust with the seller receiving a secured installment note with a priority interest in the trust securities. The remainder of the transaction was for taxable cash proceeds.
Dr. X- North Carolina, Dr. Y- California, Dr. Z- Georgia.
Medical Business Sale- A sale of veterinary/dental practices with taxes deferred on approximately 85% of the total proceeds. The goodwill allocation of the practice sale was sold through an LLC or trust with the seller receiving a secured installment note with a priority interest in the trust securities. These sales were to outside parties through brokers, to Associates, and to corporate buyers. Typically the real estate was leased to the buyers.
Dr. A-Virginia, Dr. B- North Carolina, Dr. C- Tennessee
Business Real Property & Investment Real Property Sale- Multiple real estate sales with taxes deferred via 1031 exchanges and appropriate replacement properties purchased. Typical goals included diversification, income production, vacation properties, family needs, greater tenant security, or simply tax deferral. Taxes on these transactions can be 100% deferred
100+ transactions in 26 states.
Partnership Sales with Partners Desiring Different Treatment- Multiple sales with partners exiting in different manners, some with tax deferral, some with retaining assets, some with cash. Appropriate partner planning and distribution plans were implemented.
Dr G&H- California, Dr. I&J, North Carolina, Dr. K&L, California,
Tax-Deferred Private Investment Sale- sale of various entity interests (LLC interest, private stock, restricted options) in businesses, real estate or private (non-publicly traded) investments in companies. Taxes on these transactions can be 100% deferred.
Dr. 1- California, Investor 2- Virginia, Investor 3- Maryland.