When you own a high-value, highly appreciated asset, such as a business, a commercial real estate investment, your personal residence, or even an art or antique collection, you may well be hesitant to sell it, even though you’d prefer to do exactly that. Why the hesitancy? Capital gains taxes could eat up 20% or more of your profit. In addition, the sale could push you into the 37% income bracket. With draconian results like these, it’s no wonder you’re just sitting on the asset. What you need is a viable exit strategy that lets you “exit rich.”
That’s exactly what the Deferred Sales Trust (DST) does. This innovative, proprietary tax action plan makes the perfect exit strategy when selling your business.
The DST provides you with numerous advantages, including the following:
- Capital gains tax deferral
- Preservation of your current income tax bracket
- Reduction of your ownership risks
- Ability to diversify your investments
- Ability to obtain stable future income, such as for retirement
- Compatible with all types of business structures, i.e., C corporations, S corporations, partnerships, LLCs, etc.
- Probate avoidance and estate tax reduction when utilized as part of your overall estate plan
Protection From Potential Storms
In addition to all of the above, the DST can protect you from potential storms that can make selling your business disadvantageous instead of the event that enhances your family wealth. These storms can be broken down into the following three categories:
1. Political Storms
As you likely already know, President Biden’s American Families Plan calls for hiking the long-term capital gains rate from its current 20% to 39.6%. If you have an annual household income of more than $1 million, this translates to 43.4% when you include the Obamacare net investment tax. In addition, the plan calls for elimination of the stepped-up basis for assets with a gain of $1 million or more.
2. Economic Storms
The pandemic hit the business and real estate markets hard. The good news, however, is that valuations and prices have rebounded dramatically. Today, they’re at all-time highs, making this the perfect time to sell your business before the next Covid variant potentially hits and prices plummet again.
3. Demographic Storms
Finally, as a Baby Boomer, you are part of the demographic that owns the most wealth in the U.S. Specifically, the average net worth of people in the 55-64 age bracket was $1,175,900 in 2019. For those in the 65-74 age bracket, that figure rose to $1,217,700. Your business interests likely represent a large portion of this wealth. Unfortunately, however, your business is an illiquid asset that can’t provide you with the retirement income you need. It is, nevertheless, part of your taxable estate.
Selling your business now, and utilizing the DST to do so, protects you from all three of these potential storms.
Find Out More
If the DST sounds too good to be true, rest assured that it’s not. It’s a safe, legal way to defer capital gains taxes and allow you to “exit rich” when you sell your business. Want to know more? Simply contact Reef Point today. We’ll be happy to answer all your questions.