Succession Planning

Tax season often defines the strength and success of a CPA firm. It also tests and exposes challenges and gaps in services, clients, personnel, processes, and other aspects of managing the practice. Some firm owners hope the next tax season will be their last as an independent firm; others will use the coming tax season to gauge their potential to acquire another firm. Quite a few have already made the leap to merge, and next tax season will be a part of their first transition year.

Entrepreneurs work hard to make their businesses succeed, and they often have a large percentage of their personal wealth embedded in those businesses. When they begin to contemplate retirement, it is important to maximize the net proceeds from the sale of their business to provide sufficient resources to support their retirement.

One disadvantage of forming a Subchapter C corporation is the unfortunate reality of “double taxation.” The first level of taxation occurs when the business pays corporate income taxes on its profits. The second level occurs when the previously taxed profits are distributed to shareholders as dividends. Even if the corporation does not have sufficient cash flow and decides to distribute property that has appreciated in value to its shareholders, the tax is typically unavoidable.

At many middle-market companies, mergers and acquisitions (M&A) are few and far between. But if your company’s strategy includes growth by acquisition, M&A needs to be a core competency. Fortunately, this does not require staffing a large internal transaction group.

When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, taxpayer-friendly opportunities were aimed at quickly getting cash into the hands of businesses who needed it most. One method of accomplishing this included the temporary reintroduction of net operating loss (NOL) carrybacks. While this was certainly a welcomed benefit, some taxpayers who were involved in a merger or acquisition in 2018, 2019, or 2020 may need to review their old agreements to make sure the benefits of their NOLs are preserved.