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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to how to retire on time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. That said, please remember, this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, thanks for joining me. Hey.
David:Yeah. Glad to be here.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting them to 913-363-1234. It's 913-363-1234. Or you can email questions to heymike@howtoretireontime.com. Let's begin.
David:Hey, Mike. I'm about to sell my business and have no idea how to convert the sale into a retirement plan. What should I do?
Mike:K. So business sales are a bit tricky. And the reason is when you look at it from a high level, you've got your tangible assets and your intangible assets that you're selling. That's the most basic way I can think about it. Your tangible assets.
Mike:Do you own the office space? Do you not own the office space? Do you have equipment? So some companies, it's more of a just a service company. So there's not really any tangible assets.
Mike:But most companies, they might have real estate that they own part of a building or all of a building. Many companies have trucks or equipments or just things like that that would be a part of the sale. And then then you have your intangible assets. So goodwill, which is also interpreted as the value of the business, the perceived value. If someone were to buy this business, how much would it continue to generate in revenue and and what are those forecasts look like?
Mike:You know, and you're looking at a p and l here. So profit and loss statements and all of that. But you're also looking at trademarks, patents, if there's anything else that maybe isn't physical, but it's something that benefits the business. So when I look at just the the sale of a business, I first wanna see how much did you put into the business, the cost basis, because you shouldn't be taxed on what you put in there. Right?
Mike:And was that properly accounted for or not? Then I wanna look at your tangible assets. So for example, if you own real estate, you probably wanna sell the real estate as a separate transaction than the the business, the intangibles, because you can sell the real estate in a separate transaction, bundle it all together, but then explore things like 1031 exchanges into maybe a Delaware statutory trust or another real estate property and defer taxes. So let's say you've got a $1,000,000 business, David. Okay.
Mike:Yeah. 400,000 of that is real estate property.
David:Okay.
Mike:If you bundle it all up in just one transaction, you could pay taxes on all of it. Or you can take 400,000, defer it into another vehicle that can continue to pay cash flow and appreciate in value. So that 400,000 is all moved over, and now you're only paying taxes on 600,000 of the sale.
David:I like I like the sound of that.
Mike:Do you pay more or less taxes on 600,000 or $1,000,000? Like, this is easy math.
David:Yeah.
Mike:K. So understanding how to break apart the sale can help you understand how to move assets tax efficiently. And I just touched the surface of of different ways you could structure that. Make sure you've got a good broker, a good business broker to help you structure the sale. Also work with someone like me or a CPA or someone that can look basically where the money's gonna go to.
Mike:So e for the expression work backwards, know where you wanna go and then work backwards from there. Right? You've heard that before. So what does your lifestyle and legacy plan look like? Many people when I mean, really when you sell a business, you don't get a bunch of IRA money from the sale.
Mike:That's not how this works. You get a bunch of after tax non qualified money that when you put it in the market or anywhere else, you're gonna be subject to all sorts of tax issues. So let's say you sell your business for $20,000,000. Can you put it all in high dividend interest products? You maybe don't need all of that income, but you're thinking, you know, gosh, I'll just reinvest it all as well.
Mike:You could trigger so many tax problems, so many tax inefficiencies by doing that. But Mike, I wanna grow my assets. That's fine. You can grow your assets in different ways. Maybe you put a portion of the assets into stocks or private equity that doesn't really pay a dividend.
Mike:It's focused on growth. That can free up a lot of the potential tax problems. Okay? You could look at tax advantage products or investments. There's so many things you could do, but you first need to figure out what's the plan that you want.
Mike:What's the lifestyle legacy look like? Then you look at the efficiencies that you're gonna need in this situation. Okay? Or basically, how not to screw this up from a tax standpoint. That's really what we're talking about.
Mike:And because everyone's plan will be different, this efficiencies and the strategies will probably be different. There's only so many strategies out there, but what's the combination of them? I'm thinking of, like, cooking different ingredient ratios, right, for different flavors. And then you start looking at the investments and products, where they're going to go, and then you can start to put together the sale. But you gotta start first with the plan, the efficiencies, the the growth portfolio, where you wanna go, and then start working backwards on how you're gonna structure the business and then understand, okay, once the business is sold, we're gonna go down this this checklist of items.
Mike:You've already put it all together. And it can be complicated. So maybe you move some assets, like I said, into Delaware Statutory Trust if you have real estate. Maybe you don't. The other assets, the goodwill, the other stuff that's just gonna get hit by taxes, how do you offset that?
Mike:Maybe you're looking into oil and gas partnerships or qualified opportunity zones or among these other alternative asset classes that maybe will help offset some of the the taxes. Mhmm. Maybe you structure a sale just to kind of lower the taxes. There is a ripple effect on every decision that you make. So with that said, you you worked your whole dang life to put this business together.
Mike:Right? To grow the asset for this future. Yeah. Why wouldn't you just spend a few extra minutes or maybe a couple of extra hours before you put your business for sale? Why not?
Mike:The reason I think why people don't is they just they go with 1 specialist or one expert or whatever it is. They have an oversimplified opinion. So you talk to a financial adviser, probably won't go deep into the taxes, but will tell you where you're gonna put your money. Oh, right. They might say something like, well, you know, taxes are taxes.
Mike:You can't get out of it. But, hey, when you pay it, we'll just grow really, really fast or really, really well. Whatever that means. Yeah. Or then it might be a business broker who says, well, you know, this is kind of how things are.
Mike:But, you know, when you get there, then we'll we'll help connect you with with someone. And they just wanna sell the business. And so they kind of just overgeneralize all the other options. Maybe you would talk with the CPA who just says, oh my goodness. You know, you you got these options right here from, you know, the tax, the structure.
Mike:Here's the accounting. Here's how you can adjust whatever for the sale of the business, the broker sells it, and then it's just kind of it is what it is. Right? You needing a competent broker, CPA, advisor, kind of this whole team, that's really how you get more out of your hard earned money when you sell a business. And then being able to understand the consequences of where the money goes when you retire to potentially avoid things like the extra was it 3.8% in taxes if you hit the net investment income tax threshold or, maybe you can save a few $100 a month by not going too deep into IRMAA, the the Medicare surcharge if you're 65 or older.
David:Right.
Mike:All of these things matter. If you do have a business and you're considering selling it, get involved with someone like Kedrick. Someone that can really dive into these details, put together something that that makes sense, that supports your lifestyle and legacy goals. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast.
Mike:Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
David:Learn more about Your Wealth Analysis and what
Mike:it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.