Case Study #1

How do I get value out of my business without losing so much to taxes?


My name is Cal. Over 28 years, I have built a chain of auto body repair shops from scratch. As a college dropout, I started repairing cars of friends in my parents’ garage. Now, at age 47, I am the sole owner of a business of 45 employees. I’m not yet ready to retire or relinquish control. Recently, I received an offer for my business from a national chain. I turned it down because I think we still have growth potential.


After consultation with my BSG professional, my goals are to: 1) gradually reduce my work time; 2) extract more cash from the business over the next few years, without giving up control; and 3) cash out my business equity in 10-15 years. I have two employees who are capable of becoming my successor with grooming. Both are in their early 30s.

My BSG professional asked me two key questions:

  1. In the short-term, would I like to take cash from my business more tax efficiently – as opposed to fully taxable salary?
  2. In 10-15 years, when I plan to cash out, what do I estimate my business will be worth?

BSG Strategy

Cal is in a high personal income tax bracket, so strategies for taking cash out of the business tax efficiently are attractive. He thinks the business could double in value over the next 10-15 years, assuming the current rate of growth.

His BSG professional emphasized that, generally, gains on the sale of a business interest may be substantially or entirely taxed at capital gains rates. Using salary to get value out of a business maximizes exposure to ordinary income taxes. His BSG professional also explained that a business could potentially be sold to a successor on an installment basis. Depending on how it’s structured, this strategy can help spread the tax impact over time, and may be substantially taxed as capital gains.

Cal’s company had not reviewed its qualified retirement plan from a strategic perspective since its inception. The BSG professional also arranged for its review by an independent pension consulting firm that determined a newer design would allow the company to increase its tax-deductible plan contributions with the lion’s share going towards his retirement benefits. Plan contributions are not currently taxable to Cal. Now, he can reduce the amount of after-tax dollars he has been setting aside to supplement what was an otherwise insufficient retirement nest egg.

His BSG professional set up meetings with Cal, his CPA, and a certified valuation firm so that the future value of his business could be established. The BSG professional helped Cal explore funding options for a buy-sell agreement to plan for the possibilities of his death, disability, as well as his planned exit from the business.

© 2012 AXA Advisors, LLC. All rights reserved.
GE-2461568 (3/19) (Exp 3/21)

Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.

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