Keeping more of what you have built is the driving theme behind our team’s Pre Transaction Wealth Optimization Process. Many entrepreneurs and executives focus so diligently on growing the company towards a transaction that they simply lack the time and resources to thoughtfully consider the myriad of issues and planning strategies they should consider to increase your proceeds from a sale, merger, or acquisition. Tax efficiently monetizing equity participation is a primary goal for many founders and company executives. The following strategy may be worth considering as year-end approaches and you want to combine tax planning with gifting to loved ones.
There are a multitude of founders and senior executives of life science companies who are in the “sandwich” generation. They are providing financial assistance to aging parents, loved ones, and adult children. While the easiest and most apparent solution is to simply write a check, there is a more tax efficient way to accomplish this goal. Let’s first understand the current rules around gifting.
In 2016, an individual can give any single recipient $14,000 per year free from gift or income taxes. A married couple can give $28,000 by utilizing gift splitting. A married couple could give up to $84,000 in 2016 to two children and a dependent relative with no gift tax implications. If you are an executive of a company with a concentrated position in stock or are anticipating an event that would drive up the price of the stock, that may be the very best asset to give, instead of cash. When you give stock, you give away your cost basis to the recipient. Gifting appreciated assets to adult children and loved ones who then sell the shares for liquidity may serve to reduce the capital gains taxes due. Recipients of the appreciated shares who are in the two lowest income brackets 10% and 15% are subject to 0% capital gain rates in 2016. If you are in a 35% income tax bracket or higher, your capital gain rate may be as much as 23.8%. This strategy allows you to help the ones you love and reduce your tax burden at the same time. Please feel welcome to call or email with any questions.
Greg Sarian, The Sarian Group at HighTower
CPWA® ǀ CIMA® ǀ CFP® ǀ ChFC® ǀ CEPA®