Case #9 · John
Sale of a Business
Turning a disappointing offer into lifetime income.
The situation
John of Chicago wanted $300,000 for his business but received no offers above $250,000. His depreciated basis is $50,000.
A $250,000 sale would create a $200,000 gain taxed at 20% because of his other income: about $54,000 in capital gains taxes, including state tax.
The goals
- Get more than $250,000 of value from the sale
- Reduce capital gains tax
- Keep income for retirement
The strategy: A charitable remainder annuity trust (CRAT)
- John's trust advisor structures a CRAT before the sale.
- John receives an immediate tax benefit worth about $65,000 from the charitable deduction.
- At retirement he receives $30,000 a year for life.
- At his death, his heirs receive $250,000 tax-free, and his favorite charity receives a substantial gift.
The results
| Tax benefit | About $65,000, instead of $54,000 of tax |
|---|---|
| Lifetime income | $30,000 a year |
| Heirs | $250,000 tax-free |
Figures are illustrative and based on the tax rules in effect when the case was prepared. Results vary.
Could a strategy like this work for you?
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