Navigating Post-Acquisition Tax Challenges

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In this case study, we explore the tax optimization journey of a client navigating post-acquisition complexities after their C-Corp software company’s acquisition, facing high… Scroll down to keep reading.
Post-Acquisition Tax

In this case study, we explore the tax optimization journey of a client navigating post-acquisition complexities after their C-Corp software company’s acquisition, facing high capital gains and a $100k state tax liability. Anticipating a $1.1M taxable income for 2023, comprising wages, capital gains, and Schedule C income, the client sought strategies to mitigate tax burdens. Tavola Group proposed tailored solutions, including a 401k plan, donor-advised funds, and income-shifting possibilities through the C-Corp, aiming to maximize tax efficiency while considering ancillary factors such as Social Security implications. Through meticulous planning, we demonstrate the potential for substantial savings and financial empowerment through proactive tax strategies.

Client Overview

The client is married with two young children (ages 3 & 4) and provides support to their mother-in-law. The client established their C-Corp software company in 2000 with a single other shareholder. Following the company’s acquisition in 2022, the client received a substantial amount of stocks and stock options, qualifying for a 1202 exclusion.

The client plans to have a W-2 for their 2022 tax return post-acquisition. However, concerns arise regarding high taxes due to capital gains and a $100k state tax liability. Despite awareness of common tax-saving strategies like charitable giving, the client questions the return on investment associated with such contributions.

For the forthcoming 2023 tax return, the client anticipates $1.1M in taxable income, comprising $400k in wages, $700k in capital gains, and approximately $17k on Schedule C.

Proposed Strategies

Strategy #1

  • Tavola Group suggests initiating a 401k plan for the client and allocating the entire $17k from Schedule C. However, Tavola Group notes that without contribution from an entity, tax savings might be limited, emphasizing the necessity of a retirement plan.

Strategy #2

  • Considering a donor-advised fund (DAF). However, the client has limited options for tax savings with large bonuses through W-2s, suggesting alternative strategies involving brokerage accounts and Family Limited Partnerships.

Strategy #3

  • Discuss income-shifting possibilities through the C-Corp, proposing payments to the client’s mother-in-law to optimize tax efficiency. However, considering the implications of Social Security for the mother-in-law’s age is essential.

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