So if you take the lump sum
payout and you receive the full
amount of your business all at
once, this could raise your
income enough where you are
susceptible to all of these
additional taxes that you've
never had to face.
In order to minimize taxes on
the sale of your business, you want
to think about what your current
tax bracket and tax situation looks
like as well as in the future.
Depending on how that looks,
you may want to structure the sale
as an, an installment sale
where it takes place over time.
It's more of a gradual
transition of, of the purchase
and the business.
So this would mean that you would
receive the proceeds over time
gradually, as opposed to a lump
sum payout where you're receiving
the full amount all at once.
When you sell your business,
you are most likely going
to be encountering capital
gains taxes, which is a tax
on the amount that the value
of your business has grown.
So you're going to need to know
what the cost basis is, so what
the initial value of your
business when you purchased it,
plus any major improvements
you've made, and then what are we
selling it for?
What is my tax bracket?
So what is the tax rate that
I'm going to be paying
on these capital gains taxes?
The federal rate is the maximum
capital gains rate is 20%.
And here in Massachusetts,
the capital gains tax rate is 5%.
So you may be looking at 25% of
that sales price being taken away
in simply capital gains taxes.
And also, depending on which
state you are in, that
capital gains rate for the state
tax is going to differ.
In states like California, it's
upwards of 14%, whereas
other states it could be zero.
So that's going to have a large
impact on the net amount that
you actually receive in your
pocket at the end of the day.
Just important to take a step
back and think about what does
my situation look like, what
taxes might I be faced with?
There's also additional, what
we call trigger taxes that
could come into play, such as
increases to your Medicare
premiums in the future or
net investment income tax.
Some of these come up when your
income reaches a certain level.
I'm always going to come back
to having a financial plan in
place prior to that transition
that allows you to take into
account all of the other pieces
of your financial puzzle.
Ideally, your business does not
make up your entire net worth.
It likely makes up a large
portion of it, however, so we
want to take into account again
what you're going to receive
from the business, and that
means after taxes, after fees
and expenses as well.
As any other retirement accounts or
retirement savings for you and
your spouse if you if you have
one, as well as things like Social
Security, pension income and any
potential sources of income,
whether that is continuing part
time or having a consulting gig,
either through your business or
somewhere else.
So putting all of that together
into one financial plan will show
you how you can turn that lump sum
into your retirement paycheck.
The amount of that retirement
paycheck is going to depend
on, again, all of those elements
in the financial
plan and your particular situation.
We like to call that your retirement
paycheck replacement plan.