Tax Alert: Capital Gains Rates to Rise

Tax Alert: Capital Gains Rates to Rise This may be the opportune time to take action to avoid the increase in capital gains tax rates that will most likely take effect next year. According to the Kiplinger Tax Letter, Congress will likely increase the tax rate on long term capital gains for high income individuals from 15% to 20% starting next year. In addition, starting in 2013 the Obama Health Care Bill imposes a 3.8% tax on investment income and on capital gains for those who earn more than $250,000. These two tax law changes will result in a capital gains tax rate for 2013 of 23.8%, which is a 59% increase. If you have an interest in locking in the capital gains tax at the current rate but do not wish to sell your entire company to a third party, there are two tax strategies that you can use either to avoid paying the capital gains ... Read More..

How to Structure Stock Ownership Plans for Management Employees

WHY IT IS IMPORTANT TO MOTIVATE MANAGEMENT EMPLOYEES Attracting and retaining key employees is necessary to the success of any corporation. This factor is even more important in an ESOP company, since the number of beneficial owners in an ESOP company is much greater than in a non-ESOP company. The most effective way to motivate management employees is to give them a piece of the action. Management employees are accustomed to getting a substantial piece of the action whenever a management buyout is involved. Accordingly, it is sometimes important that management receive a piece of the action in the case of ESOP buyouts. Under IRS regulations, the “covered compensation” of a key employee is limited to $205,000. In addition, the “covered compensation” of the key management group in most companies is less than 5% of the total covered compensation of all employees. Since the key management group receives a limited ... Read More..

Exit Strategies

The exit strategies available to owners of electrical wholesaling firms are somewhat limited. The available strategies include selling the business to a competitor, selling the business to the management employees, or selling the business to all of its employees under the provisions of an Employee Stock Ownership Plan (“ESOP”). ... Read More..

22 ESOP Myths And Misconceptions

Click here to download the full article in pdf format ESOPs were first authorized by federal legislation in 1974. Since that date, there have been more than 25 separate pieces of legislation that have further defined what an ESOP is and what an ESOP is permitted to do. Despite this fact, there are more misconceptions about ESOPs than about any of the other similar financial tools that exist in the marketplace. The following describes some of the more prevalent myths and misconceptions regarding ESOPs. Hopefully, the explanations provided below will help to dispel many of the misconceptions that currently exist regarding these matters. Misconception # 1 ESOPs can only be adopted by regular C corporations False. More than half of all new ESOPs are installed by S corporations. Originally, ESOPs could only be adopted by regular C corporations. However, as a result of legislation in 1996, ESOPs can now also ... Read More..

An Open Letter to Business Owners

Dear Business Owner, Would you be interested in selling part or all of your stock in your company if you could sell it for more than twice what it is currently worth? Case Study I: The Benefits of a Gradual Sale to an ESOP We recently helped one of our clients do just that. Company X is a successful home health care company whose sales and profits have been growing at 15% per annum. The owner recently turned down an offer to sell his entire company for $6 million. Instead of selling the entire company now, we structured a transaction whereby the owner will sell 10% of his stock each year to an ESOP over the next ten years. As a result of selling his stock on a year-by-year basis at increasing prices each year, the owner of this company will ultimately receive over $14 million dollars for his stock. This ... Read More..

Tax Alert for Business Owners

Dear Business Owner, This may be the opportune time to take action to avoid the increase in capital gains tax rates that will take effect after 2010. As you may know, the Bush tax rate cuts, including the current 15% capital gains tax rate, are slated to expire at the end of 2010. In addition, if the U.S. economy starts to turn around in the third or fourth quarter of this year, we believe there is a strong possibility that the Obama budget for 2010 will propose an increase in the capital gains tax rate starting in 2010 rather than in 2011. Assuming that you have an interest in locking in the capital gains tax at the current rate but do not wish to sell your entire company to a third party, there are two tax strategies that you can use to lock in the current capital gains tax rate, ... Read More..

ESOP Pros and Cons

Information in this booklet has been developed for those owners of privately-held businesses who are interested in liquefying some portion of the equity which has accumulated in their companies. We have assumed that many of our readers may be interested in accomplishing this objective without sacrificing the identity of their companies, jeopardizing the jobs of valued employees or relinquishing control of the companies they own. An ESOP installation may provide the optimal solution for business owners hoping to achieve all of these goals. An ESOP (Employee Stock Ownership Plan) is a powerful and versatile business and financial tool which can help a business owner to accomplish the following: The ESOP trust establishes the fair market value of the company’s privately-held stock and it also functions as the marketplace for that stock. ESOPs assure flexibility by allowing an owner to liquefy whatever portion of his ownership he chooses. The owner does not ... Read More..

Restoring The American Dream

Economic Stimulation and Solutions for Creating New American Jobs and for Protecting Existing American Jobs By John D. Menke, Esq. Historical Background of the American Dream Since the very founding of the original thirteen colonies, America has always been known as the land of economic opportunity and as the most capitalistic country on the face of the earth. During the 1700s and the 1800s, immigrants by the millions came to our shores in search of the opportunity to participate in the American dream­ the opportunity to find a job and then later to become the owner of a farm, a ranch or a small business. During most of the history of this country, Americans by the millions were able to realize their dreams. Although initially most had to work long hours in low paying jobs, many were eventually able to become capital owners. Over the last thirty years, however, this ... Read More..