Anthony Cavaluzzi is the founder of Profit Management Solutions LLC, which offers consulting services to clients that seek a higher rate of return on their business investments. Maximizing profits is, of course, the number one focus of any business owner. But what happens when you decide to pivot into a different business model or enter a different geographical territory? Often, selling an existing business is the best way to quickly increase access to cash, especially when that company is not performing well.
Anthony Cavaluzzi provides business clients with an exit strategy that effectively manages capital gain taxes owed when selling business assets. One of the most important aspects of saving on capital gains taxes is having a Tax Plan strategy designed by a tax Attorney that will minimize capital gains. Profit Management Solutions LLC will design a strategy to reduce your capital gains taxes greatly.
Here are more tips on how to alleviate those transactional fees that cut into profits when you decide to sell your business.
1. Reinvest in an Opportunity Zone
The Federal government allows business owners to defer capital gains tax if they use the money gained to open a business in an Opportunity Zone. An Opportunity Zone is an area that is declared to be a distressed community. This may be due to a mass exodus of manufacturing, high poverty levels, or neighborhoods that are experiencing poor economic growth. A business owner has 180 days after the sale of a business to take advantage of this tax deferment, giving you more time to become profitable in your new business venture.
2. Sell your business in phases
Selling your business in installments is another way to reduce your overall capital gains tax obligations. This way, you won’t eliminate capital gains taxes, but you can alleviate how much you must pay in each phase. Spreading out your tax liability allows you to continue gaining interest on savings, but if the business is structured as a partnership or has multiple owners, each partner must agree to the installment plan. And, with the added inclusion of interest payments, the buyer has a greater incentive to make installments on time and in full.
3. Watch the timing when selling a newer business
Timing is important when selling a business because it can make a difference in whether you pay the short-term or long-term capital gains tax rate. The long-term capital gains tax rate is much more favorable. If possible, don’t sell, but hold on to a business that you’ve purchased in the last year. Short-term capital gains are taxed at the same rate you would be taxed for ordinary income. But, depending on your income, capital gain tax rates for long-term capital sales depend on your income and are categorized at 0 percent, 15 percent, or 20 percent, depending on the federal income reported.
Anthony Cavaluzzi and Profit Management Solutions LLC review business operations to look for ways to offload corporate taxation. Any profits made by a business can be better managed or avoided entirely using many legal vehicles such as accelerated depreciation, business sales by installment, and tax credits.