A dentist and entrepreneur in her 50s was interested in selling her rapidly growing orthodontic practice within the next five years. The client had recently expanded the practice, acquiring two separate practices and opening a fourth office.
When the client first engaged Wescott, she was in the midst of considering a deal that would result in several million in earnings, about a third of which would be subject to capital gains tax. She was in need of financial guidance to understand how the sale might affect her personal finances and planning.
Wescott outlined options for the client to help manage the tax implications and avoid capital gains tax on a future sale, including considering changing ownership structure of the practice. Changing the structure of the practice to a limited liability copy (LLC) would give the client greater asset protection and reduced personal liability. LLCs offer tax flexibility allowing owners to choose whether the company will be taxed as a corporation or as a pass-through entity, or S-corporation. When set up as an S-corporation, the owner can avoid higher capital gains tax rates when selling.
With her successful orthodontic practice, the client already had considerable wealth and real estate assets in the physical office spaces. The gain of the sale would propel her to ultra-high-net-worth, introducing challenges with estate and tax planning.
Together, Wescott and the client explored ways to incorporate the gains into her estate plan to mitigate taxes. Putting some of the assets into a trust for her young child would help remove some burden from her estate tax. Knowing her interest in giving back to the community, Wescott helped her establish a lifelong giving strategy via a donor-advised fund that would take advantage of upfront tax deductions.
Selling a business requires thoughtful planning to determine the best course of action for the seller and their financial plans. With Wescott in her corner, this entrepreneur was able to navigate the sale of her business while protecting her assets and establishing a well-structured estate plan that will serve her family in the long run.
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