When selling a business, a business or its owners may wish to share some of the bounty with employees or other service providers. A 2020 tax court case found payments to a business associate to be compensation to that associate rather than a gift.
Why set yourself up for litigation?
Consider how (1) declaring compensation and grossing up an employee for taxes and deducting the compensation income compares with (2) gift tax consequences. If a client is really serious about wanting to provide such payments when selling a business, consider whether planning to shift equity may be tax-efficient.
Learning Objectives:
- Identify when payments to employees and other service providers constitute income to the recipients, including a review of a 2020 tax court case
- Identify how grossing up an employee for taxes may avoid a net income tax cost, when it does not avoid a net income tax cost, and how that might compare to gift tax issues
- Recall how nonqualified deferred compensation rules interact with this gross-up idea
- Identify how issuing a profits interest may avoid these tax issues
In addition to being accredited for CPE, CLE credit will be available for California, Illinois, Missouri, and Texas (pending).
Steve Gorin, CGMA, CPA, J.D.
Thompson Coburn LLP
Partner
[email protected]
(314) 552-6151
Steve has drafted trusts and a full range of estate planning documents for clients to help grow, preserve, and transmit their family wealth. He has also prepared organizational documents for limited liability companies, corporations, and partnerships to implement their owners' wishes regarding current and future control and transmission, including bringing in new owners and facilitating exit strategies.
Steve enjoys helping clients structure their affairs to achieve their personal, business, and financial goals while reducing the drag that taxes imposed on them. His firm provides full service to businesses; however, he also acts as counsel on specialized matters while cooperating and facilitating the continued involvement of an existing legal, accounting, and financial services team. Steve maintains his CPA license but prefers to refer income tax returns to practicing CPAs.
Steve Gorin is the former president and an ongoing contributor to Covenant Place’s strategic initiatives. It is a senior affordable housing community with a groundbreaking model for integrated residents with the surrounding community and facilitating holistic services to enrich their lives.
To know more about Steve Gorin, kindly click on the link below:
http://thompsoncoburn.com/people/steve-gorin
For various free resources Steve offers, see https://www.thompsoncoburn.com/insights/blogs/business-succession-solutions/about
About Our Presenter
For approximately 90 years, Thompson Coburn LLP has provided the quality legal services and counsel our clients demand to achieve their most critical business goals. Whether helping with a tax, estate planning, real estate or employment issue, navigating a complex acquisition or defending a product or service in litigation, we have the knowledge and resources to meet any legal need.
With over 380 attorneys, we have experience in more than 50 areas of the law. Supported by our firm's state-of-the-art technology, lawyers in our Chicago, Dallas, New York, Los Angeles, Southern Illinois, St. Louis and Washington, D.C. offices enjoy a nationwide practice.
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