The final post in our Business Killers assessment focuses on the sixth mistake that business owners make when running their company: failing to anticipate and plan for changing federal and state tax laws.
Answer the following questions to see if your company is vulnerable.
• Has the owner determined his or her financial goals?
• Is the owner proactively planning to deal with changing tax laws?
• Is the owner working with financial experts?
• Will any of the owner’s retirement income be tax-free?
• Does the owner have a written exit plan for the business?
The more “no” answers, the greater the risk. How does your company look?
Many owners assume that you can’t beat Uncle Sam. Thus, they fail to appreciate that tax planning is an important part of an exit strategy. And like most aspects of that exit strategy, the more time you have to plan, the more likely you are to achieve the results you want. The amount of tax owed from the sale of a business depends upon whether the sale proceeds are taxed as ordinary income or capital gains. Profits from the sale of business assets likely will be taxed at capital gains rates, but money paid to an owner for transition consulting services probably will be taxed as ordinary income.
It’s not too early to begin working with your team to estimate the likely tax bite from a sale of the company and come up with a plan to pay those taxes. This will allow you to leave the business on your timetable, with your retirement funding intact.