One of the most important aspects in any transaction is the taxation consideration. A Neumann & Associates is not a tax advisor and cannot provide tax advice. However, we have been working for many years with very qualified professionals who can minimize the tax impact for seller and buyer.
On the buying side, a company is typically purchased with after-tax dollars, i.e. a $10 million acquisition costs in essence 33% more, or $16.7 million in pre-tax generated dollars. By utilizing a sophisticated tax planning approach as approved by the IRS, the required additional $6 million plus in pre-tax dollars can be vastly reduced or eliminated.
On the selling side, capital gains taxes are typically due for the seller, i.e. a 25% tax on the $10 million transaction price. By utilizing certain tax planning approaches, the capital gains tax can be reduced or eliminated. These are established and proven approaches as approved by the IRS. Continued cash flow and / or income with reduced tax burdens are available within this context.
In sum, what appears as a $10 million transaction, in essence typically costs the buyer $16.7 million and the seller only receives $7.5 million (with $2.5 million due to taxation). With the proper tax planning, this gap can be substantially narrowed or entirely eliminated, making it a win-win situation for both buyer and seller. We strongly advise clients to consult with their respective tax planning experts to evaluate a transaction prior to committing to it. We can provide the proper introductions to make the tax planning process most beneficial for both buyer and seller.