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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 90099
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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I am a minority owner of a company based in California. My

Customer Question

I am a minority owner of a company based in California. My ownership is 25% and I am also an employee.
In the event that the company is sold I understand that any capital gain onthe sale of the company will be taxed as a federal capital gain, but also taxed as earned income in California.
Is there anything that I can do to legally reduce my tax liability if the company is sold such as transfer my ownership to an offshore corporation?
Submitted: 1 year ago.
Category: Legal
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking.

In the event the company is sold, the only thing you can do to seek to reduce your personal capital gains liability is to structure the buyout so that the majority of the money to the shareholders who are employees is paid in the form of severance which would be then taxed at the personal income rate and not the capital gains rate. This is something that has to be negotiated as part of the sale whereby the sales price of the company would be less and closer to what you have paid for the company and the purchase agreement would specify that all of the employee/shareholders would either receive a severance (which would be calculated to make up for their share of what the actual sales price would be) or if they will stay on it would be paid in form of a retention bonus and either way it would then be taxed as personal income and not capital gains.

Legally, transferring your ownership of shares to an offshore LLC owned by an offshore trust is not supposed to excuse you from capital gains on a sale of a company in the US. Thus, the offshore company is still liable to pay the capital gains for any profits from sales made in CA or in the US.




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Customer: replied 1 year ago.

Many thanks for the information I could not see a way out myself.


 


Capital gains in California are taxed as earned income and so the structure of any potential buyout payment as severance would make no difference from the perspective of state income tax and the financial liability would not change.

Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your response.

Right, but capital gains are taxed at a higher rate for federal purposes, so you still end up saving. You are not going to escape death or taxes I am afraid, all you an do is try to prolong life and minimize the taxes you pay. Taking the payment as severance or bonus would minimize your federal tax and save you money anyhow.

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