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Profit Preservation: Tax-Deferred Strategies for Selling Your Business

Admin • March 8, 2024

You’ve built a thriving business and poured your heart and soul into it, and now it’s time to sell and reap the rewards. Congratulations! That’s a monumental step, not just in terms of the immediate financial windfall but also for your long-term financial health. It’s an exhilarating, albeit slightly nerve-wracking, phase. 

But before you pop the champagne and sail off into the sunset, let’s talk strategy, specifically tax strategy. Yes, I know “tax” isn’t the most thrilling word in our vocabulary, but stick with me because Uncle Sam has his eye on a piece of the pie. 

Selling a business can trigger a significant tax bill, leaving you feeling like you just worked hard for someone else. Understanding and leveraging tax-deferred opportunities can significantly impact how much of that sale you get to keep and grow over time. 

What Does Tax-Deferred Mean?

Tax-deferred means you can delay paying taxes on investments and their earnings until you withdraw the money. This allows your money to grow tax-free, potentially leading to significant savings. Often, when money is withdrawn during retirement, you will be in a lower tax bracket.

Here’s an example: Imagine you sell your business for $1 million, resulting in a $500,000 capital gain. If you were to pay taxes on that amount right away, it could leave a hefty dent in your pocket. But by utilizing a tax-deferred strategy, you can hold onto that money and invest it, allowing it to grow tax-free until you withdraw it later. The longer you leave it untouched, the more it can compound, leaving you with a much larger sum.

Tax Strategies for the Savvy Seller

There are several tax-deferred opportunities available that can help you minimize your tax burden. Let’s explore some options you might want to consider.

1. Seller Financing

Have you ever thought about being the bank? In seller financing, you extend credit to the buyer to purchase the business. The buyer pays you back over time with interest. The catch? You don’t get all your money upfront. Still, it can spread the tax burden over several years, potentially keeping you in a lower tax bracket and reducing the immediate tax hit.

Pros:

  • Spreading sale proceeds over several years minimizes annual capital gains taxes for tax benefits.
  • Seller financing can speed up the closing process since there’s no waiting on the bank’s loan approval.
  • Offering seller financing widens the potential buyer pool.
  • Sellers may command a higher sales price because they’re offering financing.
  • Seller financing generates consistent interest income for sellers.

Cons:

  • One of the most significant risks for sellers is the buyer defaulting on the loan. 
  • Deferred full payment to sellers.
  • Crafting a seller financing agreement requires legal assistance to ensure the contract protects both parties. This can add to the transaction’s costs and time.
  • Sellers manage loans and address payment issues.

2. Installment Sales

Similar to seller financing , installment sales allow you to defer taxes by receiving the proceeds over time. You only pay taxes on the portion of the gain you receive each year. This can be a great way to manage your tax liability and keep more money working for you over the sale period.

Pros:

  • Pay tax only on received installment profits, deferring tax liability.
  • Installment sales enhance buyer accessibility beyond traditional financing.
  • Earn interest on financed amounts for additional income.

Cons:

  • Risk of buyer loan default.
  • Delayed full payment of sale proceeds.
  • Potential for lower future income if interest rates rise.
  • Possible decline in property value over time, complicating resale after default.

3. Qualified Opportunity Funds (QOFs)

This program was established by the federal government in 2017 and designed to spur economic development in specific areas. If you reinvest your capital gains into a QOF operating in a designated Qualified Opportunity Zone (QOZ), you can defer paying taxes on those gains until you sell your investment, or until December 31, 2026 — whichever comes first. 

You must reinvest your capital gains within six months of selling your business. If you hold the investment for at least five years, you can exclude a portion of your original capital gains from taxation. If the investment is held for at least ten years, any capital gains from the future sale of the investment are returned to you tax-free.

Pros:

  • Defer taxes on QOF gains until Dec 31, 2026, or upon sale/exchange.
  • 10% gain exclusion for QOFs held over 5 years; 15% for over 7 years.
  • After 10 years, QOF investments can grow tax-free.
  • QOF investments boost distressed areas with new jobs and development.
  • Opportunity to make a positive impact in at-need communities.

Cons:

  • As with any investment, there’s no guarantee of a return, and investing in distressed areas may carry higher risks.
  • There are strict regulations to qualify for the tax benefits, including how and when funds are invested and managed.

4. Real Estate 1031 Exchange

If your business includes real estate, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds from the sale of your property into the purchase of another property. Also known as a “like-kind” exchange, the IRS lets you sell one property and reinvest the proceeds in another similar property while deferring taxes on your gain. 

With careful maneuvering, real estate investors can use 1031 exchanges to keep deferring taxes indefinitely through strategic property swapping.

Pros:

  • Defer capital gains taxes on the sale.
  • By deferring taxes, investors can potentially acquire larger or more valuable properties, allowing their portfolio to grow.
  • Properties exchanged through 1031 may be inherited with a stepped-up basis, negating capital gains tax.

Cons:

  • The rules governing 1031 exchanges are complex; failing to adhere to them can result in a significant tax liability.
  • Strict timing pressures quick decisions, risking less favorable choices.
  • Not all real estate transactions qualify for a 1031 exchange. 

5. Charitable Remainder Trust (CRT)

Feeling philanthropic? A CRT allows you to contribute a portion of your business sale proceeds to a trust, which then pays you (or another beneficiary) a stream of income for a term of years or for life. After the term ends, the remainder goes to your chosen charity. This strategy can offer immediate tax deductions and reduce estate taxes while supporting a cause close to your heart.

For example, let’s say you sold your business for $5 million and contributed $2 million in proceeds to a CRT. The CRT could then pay you a set percentage of $2 million yearly, say 5%, equaling $100,000 annually. After your death, the charity of your choice would receive the remaining assets in the CRT.

Pros:

  • Claim an immediate tax deduction in the year you set up the trust and transfer assets into it.
  • If the CRT is funded with appreciated assets, assets within the trust can be sold without incurring capital gains tax at the time of the sale. This allows the full value of the assets to be reinvested by the trust, potentially increasing the income generated for the beneficiaries.
  • CRTs provide an income stream for the beneficiaries. 
  • Beyond the financial benefits, you can support causes and organizations important to you.

Cons:

  • CRTs are irrevocable; beneficiaries or terms of the trust cannot be changed.
  • Setting up and managing a CRT can be complex, requiring legal and financial expertise.
  • Income received depends on the trust’s investment performance. Poor investment performance can reduce the income stream and the ultimate charitable donation.

Let Five Pine Wealth Help You With Tax-Deferral Strategies

Smart tax planning is crucial, and every situation is unique. It’s essential to carefully evaluate your options and seek professional advice before making any decisions.

Remember, navigating the complexities of tax law can be tricky. Five Pine Wealth Management has experienced advisors who can help you determine the best tax-deferral opportunities for your situation. To schedule a meeting, send an email or give us a call at 877.333.1015.

Selling your business is a considerable achievement and the start of a new chapter. Celebrate your success, explore your options, and make informed decisions to maximize the rewards of your entrepreneurial journey.

The Millennial Advantage: How to Use Your Generation’s Strengths to Build Wealth

March 28, 2025
Despite always hearing about the aging of America and the baby boomer generation, did you know the millennial generation is actually the largest age group in the country? Born between 1981 and 1996, millennials outnumber baby boomers post-WW2, with about 72.2 million millennials in the United States, as of 2023. The media often highlights millennials' financial challenges: mountainous student loan debt, a competitive job market, unaffordable housing, and credit card debt. There’s no doubt it’s been more challenging for millennials to save and gain a stable financial foothold compared to previous generations. Yet despite these hurdles, millennials have financial opportunities available to them that previous generations did not. Millennials came of age with the rise of the internet and advances in technology; they’re digital natives, incredibly tech-savvy, and well-positioned to master the digital era they live in. Millennials’ unique position in history gives them advantages when it comes to investing, starting a business, and increasing their financial literacy. Millennials and Investing Millennials are changing the game when it comes to investing—innovative financial platforms and investment products have helped to evolve the investment landscape, and have made investing more accessible than ever before. As a millennial, embracing this innovation can help move you closer to achieving your goals and building a financially secure future. Impact Investing Millennials are known for being socially conscious with their spending and supporting brands and companies that align with their values. This desire to make a difference often extends into their investments—intentionally choosing to invest in companies that reflect their values and promote the causes they support. Through impact investing, you can support positive global change while also working toward your financial goals. Impact investing can be done through investing in Environmental, Social, and Governance (ESG) investment funds, or through pursuing a strategy of Socially Responsible Investing (SRI). ESG funds focus on businesses that have strong environmental policies, social impact initiatives, and good governance. These funds have become increasingly popular with investors, like millennials, who want to support companies that prioritize sustainability and ethical practices. SRI focuses on investing in companies that promote environmental sustainability, social justice, and corporate ethics. SRI can also exclude investing in companies that engage in activities that are considered negative or harmful—tobacco, alcohol, fossil fuels, firearms, or the defense industry. Cryptocurrencies and Decentralized Finance Cryptocurrencies are newer investment frontiers that techie millennials can be more comfortable exploring than older generations. Crypto such as Bitcoin and Ethereum are digital currencies that operate on blockchain technology , which provides increased transparency and security. Crypto investments can be risky, but can also offer high rewards. Decentralized Finance (DeFi) platforms also leverage the security and transparency of blockchain technology to offer decentralized financial services and transactions. DeFi platforms provide opportunities for lending and investing without traditional intermediaries like banks and other centralized institutions. For millennials, DeFi represents a cutting-edge way to engage with financial services and they can offer more control and potentially higher returns than traditional methods. The Power of Time One of the biggest advantages millennials have when it comes to investing is time. If you start investing early, you can benefit from compound interest and long-term investments, which can significantly boost your returns and help increase your wealth. Compound interest is the process where the interest you earn on an investment is reinvested, which generates more interest. The longer your money is invested, the more it can grow. Even small, consistent contributions to your investment portfolio can accumulate substantial wealth over time. Having a long-term investment horizon allows you to ride out market volatility, and capitalize on growth over time. By not reacting to short-term market fluctuations, you can achieve more stable returns. Long-term investing is a powerful tool that can help you build a secure financial future. Millennial Entrepreneurship This generation’s core characteristics set them apart as innovators and business creators. As digital natives, millennials have a strong grasp of technology which allows them to leverage digital tools such as social media marketing, e-commerce tools, and data analytic platforms to grow their businesses exponentially. You’ve likely seen peers thrive in their ventures through their use of social media, which has become a critical tool for marketing, brand building, and customer engagement. Community-building is also highly valued among this generation—the use of LinkedIn alone helps entrepreneurs connect with fellow collaborators, business owners, and mentors. Similar to aligning your investments with your values, you can easily integrate your ethical beliefs into your business ventures. Ethical business practices such as developing eco-friendly products, creating an inclusive workplace culture, and advocating for fair trade processes can make a positive impact and build loyal customer bases. Millennials and Financial Literacy The millennial generation has more resources than ever to increase their financial literacy. Free online finance courses are easy to access, readily available, and enable you to educate yourself so that you can make smart financial decisions to help you achieve your goals. Personal finance apps like Mint and YNAB (You Need a Budget) can also increase your financial literacy by helping you understand and manage your finances more effectively. They offer features like budget tracking, expense management, and financial goal setting to help you be in full control of your finances. Finance apps make it easier for you to stay on top of your financial health and make informed decisions in managing your money. Work with Us to Reach Your Goals  Ever-evolving technology has transformed the financial landscape significantly over the last few decades and millennials are more prepared to take advantage of that transformation than any generation before them. While you can take charge of your finances on your own, working with a financial advisor can help you find your path and stay the course of your journey toward financial security. Financial advisors can provide advice that is tailored to your individual circumstances, to better meet your unique needs and objectives. At Five Pine Wealth Management , we’re committed to helping you create a customized financial plan and investment strategy to help you reach your current and future goals. As fiduciary financial advisors, we always act in your best interest in every step we take with you on your financial journey. We also offer virtual financial planning for millennials looking to fit financial planning into their own schedules. To see if we can help you, email us or give us a call at 877.333.1015 today to schedule a meeting.

Just Got a Raise? Implement These 5 New Strategic Wealth Opportunities

March 21, 2025
Getting a raise is an exciting moment in your career and financial journey. Maybe you’ve gone through an executive-level position change and received a 10% pay bump or an internal promotion yielded you an additional 15%. Regardless of how you got your raise, you’re now in a unique position to move the needle on your long-term financial goals (and maybe splurge a little, too). But before you pull the trigger on that major purchase you’ve been eyeing, it’s important to have a long-term plan for the extra money in your paychecks. Even a significant raise can erode quickly if you suddenly upgrade your home, start vacationing like a celebrity, or snap up that Mercedes you’ve been eyeing. Below are our top five strategic wealth opportunities for you to consider the next time you receive a raise. First Things First: Understand Your New Numbers A 10% or 20% raise may sound like a huge boost, but not all that money will land in your bank account. Before making any financial moves, it’s important to calculate your new take-home increase after taxes and contributions. For example, if you receive a $25,000 raise on a $175,000 salary, you might expect $2,083 more per month. However, after accounting for federal taxes, state taxes, and other deductions, your actual monthly increase might be closer to $1,500. Knowing your actual take-home pay helps you set realistic expectations and make informed financial decisions. Getting a Raise: 5 New Strategic Wealth Opportunities For high-income earners, getting a raise isn’t just more spending power—it’s an opportunity to build lasting wealth while minimizing taxes. Instead of falling into lifestyle creep, consider these five wealth-building strategies to maximize your higher income. 1. Grow: Maximize Tax-Efficient Investment Opportunities With your increased income, you now have more opportunities to maximize tax-advantaged accounts and investment vehicles. For 2025, you can contribute up to $23,500 to your 401(k), plus an additional $7,500 if you're 50 or older. If you weren't maxing out your contributions before, your raise provides an excellent opportunity to reach these limits. Let's say you direct $750 of your new monthly take-home pay to your 401(k). You not only build retirement savings but could save approximately $2,160 in federal taxes annually if you're in the 24% tax bracket. Consider increasing your retirement and investment contributions by the same percentage as your raise. For example, if you receive a 10% raise, aim to increase your contributions by 10% of that raise. This incremental adjustment will help ensure you can maintain the lifestyle you're accustomed to when you retire. 2. Save: Optimize Tax Strategies to Reduce Liabilities A higher income often means entering new tax brackets, making tax efficiency more crucial than ever. Without proper planning, you might find a significant portion of your raise going to Uncle Sam instead of building wealth. Consider switching to a high-deductible health plan (HDHP) for your family, which can lower your premiums while giving you access to a Health Savings Account (HSA). In 2025, you can contribute up to $8,550 for family coverage , potentially saving around $2,000 annually in taxes. Additionally, the money in your HSA grows tax-free and can be withdrawn for qualified medical expenses without tax liability. 3. Diversify: Explore Alternative Investments A higher income can open the door to new investment opportunities, allowing you to diversify beyond traditional stocks and bonds. Alternative investments like real estate investment trusts (REITs) can provide exposure to different asset classes, potentially offering both passive income and long-term appreciation. These types of investments often move independently of the stock market, helping to balance overall portfolio risk. They can also offer lower barriers to entry compared to direct property ownership or other traditional alternatives. The key is to align your investments with your risk tolerance and liquidity needs while taking advantage of opportunities that complement your existing strategy. 4. Strengthen: Build Your Estate With more income comes greater potential for building generational wealth. Investing half of your $25,000 raise annually for 20 years with a 7% return could add over $500,000 to your estate. This makes it essential to have proper structures in place for efficient wealth transfer. To ensure your wealth transfers efficiently, consider: Trusts to protect assets and minimize estate taxes Life insurance strategies for wealth preservation Family-limited partnerships for multi-generational wealth planning These structures become increasingly valuable as your wealth grows. 5. Impact: Upgrade Your Philanthropy & Social Impact There's something powerful about reaching a place in life where you can give back meaningfully. Beyond the personal satisfaction of a higher income, this new chapter brings an opportunity to create lasting positive change in your community and the causes closest to your heart. Maybe you still remember the community college professor who believed in you when you weren't sure about your path. Now, twenty years later, by creating a donor-advised fund (DAF) to support student scholarships, you're not just making education more accessible—you're giving another student their own life-changing mentor. By thoughtfully structuring your charitable giving through vehicles like DAFs or qualified charitable distributions from retirement accounts, you can maximize both the impact of your generosity and the tax benefits that come with it. After all, effective philanthropy isn't just about giving money away—it's about creating meaningful change in the ways that matter most to you. Red Flags: Top Signs of Lifestyle Creep While getting a $25,000 raise provides excellent opportunities for wealth building, it's important to avoid (too much) lifestyle creep. That upgraded car lease might cost an extra $200 monthly, the bigger house another $800 in mortgage payments, and the premium credit card's annual vacation package another $400 monthly in travel costs. Before you know it, your entire raise can get absorbed by new expenses. While there's nothing wrong with enjoying the fruits of your hard work, the key is being intentional about which lifestyle upgrades truly matter to you. Here are some common warning signs that lifestyle creep might be eroding your raise: Your monthly expenses rise automatically with your income You upgrade multiple lifestyle aspects at once (housing, car, travel, dining) Your savings rate remains unchanged despite higher earnings Luxury spending becomes your new normal Your cash reserves aren’t growing despite a higher paycheck Instead of automatically increasing spending across the board, take time to identify the one or two changes that would bring the most joy and fulfillment to your life. Then, invest the rest. Put Your New Money to Work with Five Pine Wealth While these strategies focus on wealth building, don't forget to invest in yourself through continued education, health, and meaningful experiences. The key is finding the right balance between growing your wealth and enjoying the fruits of your success. Whether you've recently received a raise or are anticipating one soon, having a plan in place can help you maximize this opportunity. Our team can help you evaluate which of these strategies would work best for your unique situation and create a customized plan to help you reach your financial goals. At Five Pine Wealth Management , we can help you implement these strategies in a way that aligns with your personal goals and values. To learn more about making the most of your increased income, schedule a meeting with us. Email us at info@fivepinewealth.com or call us at 877.333.1015.  Let's work together to transform your raise into lasting wealth.
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