Case # 9:      Sale of Business

John from Chicago wanted to sell his business for $300,000. The depreciated basis for his business is $50,000. He was not getting offers over $250,000 and was having difficulty accepting that price. Fortunately he met a knowledgeable Trust advisor. The advisor structured the deal so John can benefit lot more than selling his business for $250,000.

 If John has sold his business for $250,000, he would have paid capital gains taxes on $200,000 (sale price – depreciated basis). Because of his other income status, his capital gains tax is 20% instead of the normal 15% and his total capital gains taxes would have been $54,000 (includes state).

The advisor structured a CRAT trust from which John got an immediate tax credit of $65,000 based on the tax deduction. When John retires, he receives an income for life of $30,000/year for as long as he lives. His heirs will also get the $250,000 tax free upon his death. Meanwhile his favorite charity gets substantial contribution through the Trust.