Friends Don’t Let Friends Sell Businesses
I speak often on the subject of giving and taxes. Probably more than 2 years ago, I spoke to some ministry leaders and I told them, “Friends don’t let friends sell businesses.”
Roger, one of those ministry leaders, heard me. One of his good friends was preparing to sell a business. And all he knew was that his friend shouldn’t sell unless he talked to us. Roger got his friend to talk to us, and as a result, his friend the business owner is paying less tax at the time of the sale while at the same time increasing his giving.
This bears some explanation.
We are heading into the season where many business sales are going to wrap up and close before year-end. Typically, there are lots of good reasons to close a deal before year-end.
But here’s the net effect: when a business sells, the owner or owners will face the highest tax liability they will ever face. That liability is locked in the moment the owner signs the purchase agreement. Unfortunately, in the rush to complete the sale, the only thing the owner does is to calculate his taxes. In other words, the owner is simply told how much that he or she will have to pay.
What’s the answer? That’s where “friends don’t let friends sell businesses…” It’s pretty simple. If an owner donates some of his or her ownership interest prior to the sale, they can deduct the fair market value of the shares donated.
Taxes go down. Giving goes up. But the magic is that the gift of the ownership interest must occur before the purchase agreement is signed otherwise the opportunity is lost.
The power of this opportunity is that the business owner can take that tax savings and increased giving and create a family foundation. There, they can support causes they care about, get kids involved and impact the world.
Do you know of someone selling a business? Perhaps you can be the one to encourage them to think smarter about that sale!