Assets for retirement

[kraftdda]

Hello I am new here have been lurking around some and decided to join. My question is I own a trucking company and currently have about 1,000,000 in assets in that. I own 2 homes with a combined value of about 350,000. 1 leased suv, and 2 owened autos. I only have about 30,000 in a retirement account, about 100,000 in checking account, to make payroll and other bills on trucking. My wife and I have 2 kids ages 7 and 9 and we have about 20,000 for each in 529. Currently only debt is about 120,000 note on trucking operation. I trade equipment at 4 years and depreciate it on a 4 year basis. I want to retire from this as soon as possible. Possibly part time work doing something but get away from 7 days a week. I am 40 years old. Our net from trucking is about 180,000 a year. My wife does not work except for our bookwork. Someone help put us on the right track. Any tricks on selling out without big tax? Thanks for your input.

 

[Empty Pockets]

It appears you're sitting well financially, it looks like you pay your equipment off pretty quickly. I don't know if I can help much, but I'm sure others on this forum can. I would also seek professional help from a CPA who handles a lot of business returns, if you're not already working with one. Have them run a lot of "what if" scenerios. Would you sell your entire business as a business, or would you just liquidate the equipment and close out your business ?

I'm not much older than you (41) and I own a small business too, and from what I can see, there has never been a better time to be a taxpayer in the US than right now. There may be some very technical ways to defer, offset or delay taxes, but I'd be very, very careful. I've tried some "tax shelters" and know I would have been way ahead if I'd paid the tax and invested the net proceeds immediately. Good luck to you, you've earned it.

 

[Buddha44]

My question is I own a trucking company and currently have about 1,000,000 in assets in that. I own 2 homes with a combined value of about 350,000. 1 leased suv, and 2 owened autos. I only have about 30,000 in a retirement account, about 100,000 in checking account, to make payroll and other bills on trucking. My wife and I have 2 kids ages 7 and 9 and we have about 20,000 for each in 529. Currently only debt is about 120,000 note on trucking operation. I trade equipment at 4 years and depreciate it on a 4 year basis. I want to retire from this as soon as possible. Possibly part time work doing something but get away from 7 days a week. I am 40 years old. Our net from trucking is about 180,000 a year. My wife does not work except for our bookwork. Someone help put us on the right track. Any tricks on selling out without big tax? Thanks for your input.

The following is not tax advice and any U.S. federal tax advice included in this communication was not intended to be used, and cannot be used, for the purpose of avoiding U.S. federal tax penalties.

This is a complicated area and you should get competent legal and tax advice. The information above is too limited for advice. However, at a minimum, you may want to consider the following:

1) evaluate income tax impact with estate tax planning (if the value of your business is high enough and you intend to leave an estate)

2) there are no tricks to avoid tax (outside of dying -- but see estate planning); there may be possible ways to defer tax if properly structured

3) any advice would depend on how your business is structured (C Corp, S Corp, partnership, sole proprietorship) and sold. Since a buyer would want step-up on the assets, a sale from a C Corp would be expensive to the seller (double tax) whereas an S Corp can use a 338(h)(10) election if necessary, partnership interest a 754 election, etc.

4) as a seller, you would generally prefer capital gains to ordinary rates or recapture rates so allocation of the purchase price to the classes of assets is important

5) a buyer would generally want step up in the depreciable/amortizable assets with a shorter tax life so there may be a tension with #4, both under the constraints that allocations should reflect fair market value

6) transfer taxes may often be mitigated by how the transfer takes place (depends on the state) so this should be reviewed as well

7) deferral mechanisms can be more tax efficient but typically mean a deferral of income or receipt, such as an installment sale, so there may be additional economic risk (as opposed to receiving everything upon closing)

There are no magical bullets which eliminate taxes and there are a litany of other tax issues that should be considered in addition to the above. I hope that your business and personal assets are not commingled -- it is not clear from the above -- as this makes the tax analysis more difficult. You should discuss your financial goals with your advisors and work out a structure which best suits your situation.

 

[teejayevans]

Finance the purchase, ie, have them pay you monthly installments to spread the
pain, also prevents them from having to get a million dollar loan. Be sure you are
the 1st in line if they file bankruptcy. Make sure you have a good lawyer experience
in business sales/contracts. Everyone I know who has sold a small business has
done it this way. The monthly payment is calculated by determining the business
income, ie it is no good to have the monthly payments exceed the amount the
new owner is bringing in, also get a good non-refundable deposit (5-10%).
To sweeten the pot, you can always make yourself available as a consultant,
helps you keep an eye on the business and make sure the new owner gets off to
a good (and profitable) start.
Tom

 

[Sandy]

I would work with a CPA who is knows business sales and transactions to structure it but here is a suggested approach, although I am not aware of all of the specific details.
(My brother is a CPA and he arranged this deal).

My parents sold their business to the non-family member who was second in command. She did not have funds to buy it outright. They structured the sale over several years, so that profits went to my parents toward the purchase while she continued to draw a basic salary. My parents retained ownership. This allowed my parents to spread out the income from the sale and benefitted the purchaser who didn't need to take hugh loans.

 

[Martha]

The following is not tax advice and any U.S. federal tax advice included in this communication was not intended to be used, and cannot be used, for the purpose of avoiding U.S. federal tax penalties.

Man, I suppose we are going to start adding circular 230 disclaimers to our posts now.

 

[Nords]

Man, I suppose we are going to start adding circular 230 disclaimers to our posts now.

Gosh, what if these posts are read by persons other than those for whom they're intended!??

 

[Buddha44]

Martha, funny how even in anonymous points we feel compelled to issue disclaimers in this litigious society. At least this way I won't have to be a client of yours because of anything I may or may not have written on this post

 

[Empty Pockets]

Careful with installment sales. I've seen a lot of buyers default or renegotiate and leave the seller holding a run down business. Also consider, if a bank won't finance the buyer - should you hand over your life's work and hope that they'll pay you ?

 

[Sandy]

Empty Pockets, your cautionary comments are correct. In my parent's case, it wasn't that the bank wouldn't do the loan, it was just less burdensome to all involved. In addition, this women had been defacto running the business for a couple of years, so skills and interest were not in question.

As I said, be sure to get guidance, but each individual situation is different; this is just an option that could be considered in the right circumstance