Tax Strategies for Selling a Business: Frank’s Success Story
Selling a business is a monumental milestone that comes with significant financial considerations, including taxes. This case study highlights how the Tax Smart Wealth Advisors at BANDER Wealth Management collaborated with Frank, a 67-year-old commercial real estate business owner in Colorado, to optimize his tax outcome during the sale of his business.
The Situation
Frank had built a profitable commercial real estate business over the years and was ready to scale back and enjoy retirement. In 2024, Frank successfully sold his business for $2.5 million. However, his CPA estimated a tax obligation of $675,000 based on a 27% tax rate. Recognizing the potential impact of this tax liability, Frank’s CPA referred him to the Tax Smart Wealth Advisors at BANDER Wealth Management to explore strategies to reduce this burden.
The Solution
The advisors proposed a two-pronged tax reduction strategy leveraging Oil & Gas investments and Real Estate Opportunity Zone Funds. Here’s how the plan unfolded:
- Oil & Gas Investments:
- Frank invested $500,000 split across two drilling programs.
- These investments provided an 80% Intangible Drilling Cost (IDC) deduction in Year 1, reducing Frank’s taxable income by $400,000.
- Real Estate Opportunity Zone Fund:
- Frank invested $200,000 into a multifamily apartment project near the University of Tennessee through a Qualified Opportunity Zone Fund.
- This investment deferred $200,000 of his capital gains tax liability until 2026 (payable in 2027).
- If held for 10 years, all growth from this investment would be tax-free.
The Results
Through these strategies, Frank’s investments achieved the following:
| Investment Strategy | Investment Amount | Year 1 Tax Deduction | Year 1 Tax Deferral |
|---|---|---|---|
| Oil & Gas – Program 1 | $250,000 | $200,000 | |
| Oil & Gas – Program 2 | $250,000 | $200,000 | |
| Opportunity Zone Fund | $200,000 | $200,000 | |
| Total Investment | $700,000 | $400,000 | $200,000 |
| Tax Impact | Amount |
| Original 2024 Tax Liability | $675,000 |
| 2024 Tax Liability Reduction | $600,000 |
| Total Year 1 Tax Savings | $162,000 |
While the $200,000 deferred gain will be taxable in 2026, Frank’s CPA expects a lower tax rate at that time, as he will no longer have active income. Additionally, any appreciation from the Opportunity Zone investment will be tax-free if held for at least 10 years.
Why It Worked
This strategy was a win-win for Frank, combining immediate tax savings with long-term financial benefits. The collaboration between his CPA and the Tax Smart Wealth Advisors ensured a tailored approach to his unique situation, demonstrating the value of proactive tax planning.
Closing Thoughts
At BANDER Wealth Management, we partner with CPAs and professionals to deliver innovative tax-saving strategies for clients. If you’re facing a significant tax event, our team is here to guide you through personalized solutions that align with your financial goals.
Schedule a no-cost, no-obligation discovery call with Blayne Andersen, CFP®, President and Chief Investment Officer, to learn more about how we can help you save on taxes and achieve financial success.
