Business Tax Planning
How much money you make isn’t what matters. What matters is how much money you keep after paying taxes.
Effective tax planning is at the heart of our legal practice, and we bring our technical knowledge and experience to bear at every stage of the business life cycle:
- Business Formation: You want the type of entity and business structure most likely to minimize taxes in the future, not just Federal income taxes but State taxes and FICA/FUTA taxes. The answer can be different for different types of businesses.
- Compensation of Key Contributors: There are many ways to compensate key contributors with equity-flavored compensation: Restricted Stock, Non-qualified Stock Options, Incentive Stock Options, and Phantom Stock. Your choice will be driven largely by the tax consequences to the company and the contributor.
- Partner Buy-Ins and Buy-Outs: How a new partner buys in and an existing partner is bought out can have large and often unintended tax consequences. Two examples: a partner buying into a partnership should (almost always) make an election to increase the tax basis of the partnership’s assets, while a partner whose interest is being bought out will face very different tax consequences depending on whether the buyout is structured as a sale or liquidation.
- Selling a Business: Selling assets or selling stock? From an LLC, an S corporation, or a C corporation? To what kind of buyer? Each detail of the transaction has tax implications and can be managed to achieve a better after-tax result.
- Buying a Business: Tax consequences can have an enormous impact on a buyer’s ROI. Among the questions to consider: whether to buy stock or assets; how to allocate the purchase price among asset categories; ownership of the business goodwill; whether to use equity for the purchase, and if so, how much; the effect of consulting fees; golden parachute payments; and the effect of state and local taxes.
Our tax lawyers represent clients in disputes and negotiations with tax authorities at all levels, from audits with the Internal Revenue Service to litigation in the U.S. Tax Court, Federal District Courts, and State courts.
We represent corporations and their shareholders in every type of tax-free reorganization under subchapter C of the Internal Revenue Code, including:
- Statutory Mergers
- Stock-for-Stock Acquisitions
- Stock-for-Asset Acquisitions
CAUTION: There is a popular and dangerous misconception that a transaction called a “merger” is tax free. A merger of a corporation into a corporation is tax-free under section 368(a)(1) of the Internal Revenue Code. But a merger of a corporation into a limited liability is treated as if the corporation engaged in a taxable liquidation.
Working with Accountants
We work with accounting firms across the region and the country to minimize the tax liability of mutual clients. Some of our tax lawyers have accounting degrees themselves. We respect the value and expertise accountants bring to tax issues and work collaboratively, hand-in-hand, to achieve our mutual goals.
State and Local Taxes
State and local taxes are imposed at lower rates than Federal income taxes, but they add up, especially in larger transactions. In one recent transaction involving the sale of a business, our tax lawyers saved our client over $100,000 in state taxes alone.
Section 1031 Exchanges
Our tax lawyers have extensive experience with like-kind exchanges of real estate under section 1031 of the Internal Revenue Code, including:
- Deferred Exchanges
- Exchanges Involving Tenancies in Common (TICs)
- Exchanges Involving Delaware Statutory Trusts (DSTs)
- Exchanges of Real Estate Interests for Oil and Gas Interests
- The Treatment of Liabilities and Cash in Like-Kind Exchanges
- The Use of Qualified Intermediaries
Qualified Opportunity Zones
By investing in a qualified opportunity fund, taxpayers can defer and reduce taxes on capital gains and eliminate tax on the appreciation of the fund altogether.
It sounds simple, but it’s not. The Internal Revenue Service has issued hundreds of pages of regulations with rules, exceptions to the rules, and exceptions to the exceptions, filled with traps for the unwary.
Our deep knowledge of the tax rules, coupled with our knowledge and experience in Crowdfunding and Fintech, have made our Lex Nova lawyers national leaders in the QOF space, representing developers and investors in the formation and operation of QOFs and their businesses.
Partnership Tax Allocations
The limited liability company, or LLC, is now the vehicle of choice for most businesses, combining the protections from personal liability traditionally associated with corporations with the “pass through” tax treatment traditionally associated with partnerships. And the laws of most states, in particular Delaware, allow the owners enormous flexibility in structuring the business relationship they want.
Two key questions in every Operating Agreement or Limited Liability Company Agreement (they’re called different things in different states) are (i) how to distribute money, and (ii) how to allocate taxable income and losses.
The intricacies of partnership taxation can create costly traps for the unfamiliar, in some cases leading to a reversal of the after-tax economic consequences intended at the outset. Our lawyers can help to ensure you and your partners get what you expect to get, minimizing tax liabilities along the way.