By Brad MacLiver
Authorship and profile at Google
Nearly everything that you own or use for personal or business purposes are capital assets. When an Oregon pharmacy owner sells a capital asset, the difference in the amount sold and the amount paid is called a capital gain (or loss).
Authorship and profile at Google
Nearly everything that you own or use for personal or business purposes are capital assets. When an Oregon pharmacy owner sells a capital asset, the difference in the amount sold and the amount paid is called a capital gain (or loss).
Capital gains also include investment income that occurs because of real assets such as property, financial assets, and intangible assets like goodwill. In Oregon and all of the U.S., all capital gains must be reported to the IRS and the appropriate taxes must be paid.
When selling a drug store or pharmacy in Oregon, there are a few tax strategies that can be utilized to help offset tax liabilities. Unless a professional has handled a large amount of pharmacy acquisitions, they typically will not know the federal regulations that allow for reduction of tax liability for the pharmacy owner.
In an era where financing a business in Oregon is more difficult, pharmacy sellers might be required to reduce their asking price so a pharmacy buyer can quality for financing. To make matters worse, in addition to lower offers they will be required to pay a greater percentage in taxes.
This is troubling for pharmacy sellers who want as much money as possible out of the deal. For most pharmacy owners in Oregon, their business is the biggest asset they will ever have, and selling the business for a certain price has been part of their plan for retirement and their estate. Knowing they will need reduce the size of the proceeds in taxes will cause some pharmacy owners in Oregon to reevaluate their retirement plans. Fortunately, there are several financial tools and strategies which allow the pharmacy owner to stick to their plans.
Family Foundations are tax exempt/nonprofit organizations, which provide tax advantages and control over philanthropic activities. Family foundations are typically private foundations that are funded by a small number of sources, and do not conduct widespread fund-raising activities. They may receive gifts from friends and limited sources. Family members serve as trustees, directors, and officers. As private foundations they can make grants, or donations to other organizations. Having a Family Foundation provides a number of benefits for Oregon businesses including, income tax deductions, exemptions from estate and gift taxes, along with the reduction or elimination of other taxes.
One strategy, but not the only one, that is currently available to assist the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT’s are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT’s can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.
CRT’s are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor’s (pharmacy owners) death. An individual (pharmacy owner or family member) can receive income from the Trust’s assets. Upon the donor’s death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.
Some tax strategies including the use of CRTs are not widely known. It would be advisable for pharmacy business owners in Oregon to be aware of the different tools that are available in structuring a business transaction. They should also be aware that only a professional with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the strict IRS guidelines could be cause for increased taxes, penalties, and in some cases criminal charges.
Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.
Washburn & Associates has extensive experience in the business of acquiring pharmacies and drug stores in Oregon. Pharmacy consulting firms like Washburn & Associates have the knowledge and experience structuring these transactions appropriately and can save a pharmacy owner large amounts of cash from taxes when selling a pharmacy.
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