Tips for saving/paying for buy into partnership

[childay]

I would be hesitant to buy into any partnership without hard assets, real estate etc.  Agree with zaphod's comments above.

[Realestatedoc]

Zaphod wrote:

I thought it was mentioned but the obvious way to do so is to just take a salary cut and 100k/y of it goes towards your equity buy in, this is pretty standard.

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But then that would be fully taxed at 50% for my partner as income wouldn't it?. Out of consideration for him wouldn't the restricted property trust be better where he'd be paying no taxes on 70% of the 500k then only long term capital gains on the last 30% which is significantly less than 50% of all 500k? Either way would be pre-tax for me but just trying to be nice to my outgoing partner. Any other ideas out there that would benefit both myself and my partner for minimizing tax burden on each of us for a 500k buy out?

[Zaphod]

Realestatedoc wrote:

Zaphod wrote:

I thought it was mentioned but the obvious way to do so is to just take a salary cut and 100k/y of it goes towards your equity buy in, this is pretty standard.

Click to expand…

But then that would be fully taxed at 50% for my partner as income wouldn’t it?. Out of consideration for him wouldn’t the restricted property trust be better where he’d be paying no taxes on 70% of the 500k then only long term capital gains on the last 30% which is significantly less than 50% of all 500k? Either way would be pre-tax for me but just trying to be nice to my outgoing partner. Any other ideas out there that would benefit both myself and my partner for minimizing tax burden on each of us for a 500k buy out?

Click to expand...

Sounds like a good way to get not the best deal possible. Maybe your partner is the nicest guy in the world and deserves everything coming his way, but how the money comes to him is his problem not yours. He should worry about his side of it not you. I am sure you are over thinking a way to be nice while the other party is really not so much. This is part of the reason doctors get poor deals, they fail to think of it as business. I would be as business like and as shrewd as reasonably possible, you're probably already getting the short end of the deal anyway.

[Realestatedoc]

Zaphod wrote:

Realestatedoc wrote:

Zaphod wrote:

I thought it was mentioned but the obvious way to do so is to just take a salary cut and 100k/y of it goes towards your equity buy in, this is pretty standard.

Click to expand…

But then that would be fully taxed at 50% for my partner as income wouldn’t it?. Out of consideration for him wouldn’t the restricted property trust be better where he’d be paying no taxes on 70% of the 500k then only long term capital gains on the last 30% which is significantly less than 50% of all 500k? Either way would be pre-tax for me but just trying to be nice to my outgoing partner. Any other ideas out there that would benefit both myself and my partner for minimizing tax burden on each of us for a 500k buy out?

Click to expand…

Sounds like a good way to get not the best deal possible. Maybe your partner is the nicest guy in the world and deserves everything coming his way, but how the money comes to him is his problem not yours. He should worry about his side of it not you. I am sure you are over thinking a way to be nice while the other party is really not so much. This is part of the reason doctors get poor deals, they fail to think of it as business. I would be as business like and as shrewd as reasonably possible, you’re probably already getting the short end of the deal anyway.

Click to expand...

99% of the time I would agree with you but this is a unique situation in that the partner I am buying out is my father. Seeing how he's responsible for my entire existence and has been kind enough to support me throughout my education the least I can try to do is save him some taxes too! So again, if anyone has any tax advantaged ways to buy out a partner that would be beneficial for both parties I would appreciate it. I would prefer to keep my promise to myself that I would never buy a whole life policy but so far a restricted property trust seems to be the only option that wouldn't force both of us to pay 50% taxes.

[Zaphod]

Realestatedoc wrote:

Zaphod wrote:

Realestatedoc wrote:

Zaphod wrote:

I thought it was mentioned but the obvious way to do so is to just take a salary cut and 100k/y of it goes towards your equity buy in, this is pretty standard.

Click to expand…

But then that would be fully taxed at 50% for my partner as income wouldn’t it?. Out of consideration for him wouldn’t the restricted property trust be better where he’d be paying no taxes on 70% of the 500k then only long term capital gains on the last 30% which is significantly less than 50% of all 500k? Either way would be pre-tax for me but just trying to be nice to my outgoing partner. Any other ideas out there that would benefit both myself and my partner for minimizing tax burden on each of us for a 500k buy out?

Click to expand…

Sounds like a good way to get not the best deal possible. Maybe your partner is the nicest guy in the world and deserves everything coming his way, but how the money comes to him is his problem not yours. He should worry about his side of it not you. I am sure you are over thinking a way to be nice while the other party is really not so much. This is part of the reason doctors get poor deals, they fail to think of it as business. I would be as business like and as shrewd as reasonably possible, you’re probably already getting the short end of the deal anyway.

Click to expand…

99% of the time I would agree with you but this is a unique situation in that the partner I am buying out is my father. Seeing how he’s responsible for my entire existence and has been kind enough to support me throughout my education the least I can try to do is save him some taxes too! So again, if anyone has any tax advantaged ways to buy out a partner that would be beneficial for both parties I would appreciate it. I would prefer to keep my promise to myself that I would never buy a whole life policy but so far a restricted property trust seems to be the only option that wouldn’t force both of us to pay 50% taxes.

Click to expand...

LOL, thats hilarious. Well then I would probably have no issue with whatever scheme you guys can come up with. If you can find a good reason for it another great way to transfer wealth is to set up a captive insurance company, thatd be something to look into in your particular case. I do not recall if it will be great on both ends of the taxing sides, but I'd at least look into it. You can have the profits go to all kinds of entities that should give you lots of leeway.

[jfoxcpacfp]

Realestatedoc wrote:

99% of the time I would agree with you but this is a unique situation in that the partner I am buying out is my father.

Click to expand...

Well, that changes the whole conversation. You should have mentioned that in the beginning. There is a lot more at play here and I think you are being shortsighted by emphasizing tax savings to the possible detriment of other issues - estate planning, your dad's financial situation, other siblings, basis in the business you are purchasing.

Your dad owns a business. He has basis in it. If he sells the stock to you (assuming it is a corporation), he pays LTCG tax, reduced rates, on the gain only. You can structure the sale in increments over several years. You will have basis in the business which will lower your tax on any future sales. If your dad is selling to you at appraised FMV and needs the $$ (or wants to be fair to other siblings or a future surviving spouse), why not at least consider an outright sale? Dad is wanting to fully retire? Work part time? There are ways to set up a transfer to allow him to have cash flow and for you to have eventual control.

Does Dad want to sell to you at a discount? A Self Cancelling Installment Note may work (SCIN). Again, you need to consider other heirs, including your Mom. I believe this is too complex an issue for you to hop into a high-commission insurance product without a comprehensive plan to integrate all aspects of the transfer of the business. That said, I admire your integrity and loyalty to your father.