Pharmacy Transactions and Capital Gains Tax in Nevada
Pharmacy Transactions and Capital Gains Tax in Nevada
One strategy, but not the only one, that is currently available to assist the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT's are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT's can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.
CRT's are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor's (pharmacy owners) death. An individual (the Nevada pharmacy owner or family member) can receive income from the Trust's assets. Upon the donor's death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.
CRT's are a tax-planning tool and professional financial planners are using CRT's to maximize their clients' financial position, and at the same time increasing charitable donations.
Third party appraisals, or pharmacy business valuations, must be completed to determine the value of the asset or Nevada business. For the charitable deduction, the donated value will be limited to the cost basis of the asset and not the current fair market value. CRT's, as a concept, are very simple to understand. However, strict and complex tax rules govern how and when a CRT can be set up.
As a tool for reducing capital gain taxes, CRT's are often used when a business, or other highly appreciated asset, is going to be sold. In accordance to the IRS codes, assets must be transferred to the CRT before there is any obligation to sale the asset. Since CRT's are irrevocable trusts, the assets cannot be taken back out of the CRT once donated. An owner of an asset, whose sole purpose it to attempt to reduce capital gain taxes on the sale of an asset, must be warned that if after the transfer of the asset to the CRT, and the sale of the asset does not happen for any reason, the asset cannot be returned. Strict, complex, and specific procedures must be followed in order to take advantage of the CRT benefits in Nevada. Only someone who has advanced knowledge in these matters should be retained to guide the donor through the process of setting up a CRT.
In order to qualify as a CRT, the trust is required to meet all conditions set forth in Internal Revenue Code 664 and it must meet every definition of and function as a CRT from its creation. These requirements cannot be met unless every transfer to the trust can be qualified as a charitable deduction under the Internal Revenue Codes.
There are a few issues which may affect the status of an asset's ability to be donated into a CRT. Assets which don't qualify may reverse the benefits of the CRT, causing it to be revoked of its tax-exempt status.
When the CRT's donor in Nevada dies or it expires at the designated time period, its remaining assets in the Trust will automatically pass to the charitable organization specified. This charity can be any legally-formed, tax-exempt organization, including family foundations.
As the tax rate increases, more and more business owners in Nevada will utilize tools like the CRT to put more money into their pocket legally instead of the government. Business owners selling large assets like their company will typically use that money to invest in more assets, whether it be new equipment, personal real estate, or business real estate.
Over time there have been some less than respectable individuals who have tried to use CRT's and other financial tools in illegal scams. With increases in capital gains taxes, there is an expectation that more scams will be lurking around. Be cautious and aware of the possibilities, but remain confident that you are working with experts in your industry. Use a company which has extensive experience with Nevada pharmacy and drug store acquisitions. Experienced pharmacy consulting firms that have the knowledge and expertise in structuring transactions appropriately for tax purposes can save Nevada pharmacy owners large amounts of money when their pharmacy is sold.
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Resource Box
Learn additional information at www.WashburnAndAssociates.com regarding capital gain taxes and other tax considerations when selling a pharmacy in Nevada.
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