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Need CPA Wizard – Long term capital gains vs marginal tax

Home Tax Reduction Need CPA Wizard – Long term capital gains vs marginal tax

  • Avatar HulksFriend 
    Participant
    Status: Physician
    Posts: 3
    Joined: 02/05/2019

    Hello,

     

    I had a question regarding a situation I am in with my current medical practice group. I recently became partner and a shareholder in my group at the end of last year. Our group is now in the process of likely selling to a larger corporation. Each shareholder is now receiving a substantial sum during the buyout (near 7 figure mark). However, given that I have only been a shareholder for 6 months, and the sale of the group will likely be completed in the next few months, it seems I will have held on to my share for less than a year. The tax implications now appear that I will be stuck with short term capital gains, while most of my partners will end up with a 20% long term capital gains rate. This will end up being a 6 figure difference in payout between the older partners and myself. Any way around this or just tough luck? Sale date can’t be delayed, and the entire group is being purchased, so I don’t think they will personalize individual shareholder with different contracts.

     

    If there is no solution, then so be it. But given the substantial difference, I figured it would be best to at least do my due diligence before hand.

     

    Thanks!

    #188372 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7117
    Joined: 01/09/2016

    You’re right – never hurts to ask and I hope you’ve asked your CPA to brainstorm, too.┬áThere is no solution that I know of, as you’ve already covered the options in the last sentence of your 1st paragraph. Maybe you can get the lawyers to sue for something and delay the purchase by a couple of months. Or maybe a real CPA wizard will show up here.

    Congratulations. Don’t be in the 50% who look back in 10 years and wonder why they have so little to show for the buyout.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #188382 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 1783
    Joined: 09/18/2018

    For six figure difference, the only potential option I see would be to have some type of escrow agreement, similar to selling a house or a contingency in selling a business. The problem is 100% and locking it in would be construed as a sale. You are looking for a transaction lawyer, you know the holding period. On the good side, at least you got in on the gain. Congratulations!

    #188384 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 774
    Joined: 11/21/2017
    Splash Refinancing Bonus

    My 2c, and I am not a lawyer or accountant.

    This is an interesting structuring and CGT problem.

    Your options might be limited by how solid the potential offer is. If you have a clear offer with terms, amount and dates set out then this may crystalize the value of your share and you may not be able to put in place any tax minimisation strategy without falling foul of anti-avoidance rules.

    If you were further out from a deal and there is not a concrete offer, you maybe able to transfer the share to your retirement account/lower income spouse or something else. But this would depend on the valuation you can get. And whether this goes into a grey or too risky area, depends on the details and your personal preferences.

    I would seriously consider seeing a tax attorney who deals with buyouts to find out your options. An initial meeting might cost you $1400 ($700 per hour – 1 hour meeting + 1 hour for report they generate). They would be able to guide you about your options, what the costs and risks are and you will be more informed about that when you make a decision. If you research it beforehand and come to the meeting informed about what your issues are (duties, tax risks, structure, CGT), then the cost might be slightly less as your meetings may be less frequent or shorter.

    #188483 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 1783
    Joined: 09/18/2018

    At a minimum, bring up the issue with the transaction attorney that is representing the group.
    There may be a potential of tax equalization adjustment, a potential distribution to compensate you before or after, etc.

    You will not get anything unless you ask.

    #188499 Reply
    Avatar HulksFriend 
    Participant
    Status: Physician
    Posts: 3
    Joined: 02/05/2019

    Any tax attorney recommendations?

    #188587 Reply
    Avatar Bartl007 
    Participant
    Status: Physician
    Posts: 66
    Joined: 01/30/2016

    I agree with finding a tax attorney with experience in these matters. Also look into opportunity zone investing as a possible solution to your predicament (not without risk)

    #188773 Reply
    Avatar HulksFriend 
    Participant
    Status: Physician
    Posts: 3
    Joined: 02/05/2019

    Anyone else with tips/advice or recommendations for a tax attorney? Thanks in advance

    #189296 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 1783
    Joined: 09/18/2018

    https://www.martindale.com/search/attorneys-law-firms-articles/?term=mergers%20and%20acquisitions

    I think you know the timeline for long-term gains. I believe your question is finding a way to delay your closing to qualify. That would require your sale to be delayed. That would require something in the sale agreement.

    #189303 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 774
    Joined: 11/21/2017

    Anyone else with tips/advice or recommendations for a tax attorney? Thanks in advance

    Click to expand…

    Try asking your estate attorney or any other attorney’s you know about a good tax attorney with experience in buyouts in your area. Also ask your accountant.

    #189802 Reply

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