Articles

Thinking About Selling or Transitioning Your Business in the Future?

Rich Hall
Silver Fox Advisor
December 2024

There’s one fact that we can all agree on…we’re all going to “exit” our business one day. Either through death, disability, divorce, distress, or disagreement. We call that the 5 D’s.

What most business owners do not understand is that roughly 70% of businesses marketed for sale today do NOT sell. Even worse, only 20% or less that transition to the 2^nd generation survive long-term. The numbers are not on the side of business owners and their families.

Why is that?

Most businesses today are operated as an “income” based business rather than a “value” based business. Just because a business generates a great income doesn’t mean it’s valuable to a buyer, a banker, or anyone else outside the business.

Here’s an example:

Let’s say your business generates a monthly profit of $100k (or whatever is the right number for your business). That’s sounds great, right? What if you as the owner are responsible for all the Sales in the business? What if you work 80 hours per week and can never take a vacation? Perhaps you have a few customers that generate most of the revenue or a few suppliers that you played golf with that are very loyal to you.

These are just a few examples that would make the business much less valuable to an outside buyer. If the business is so heavily dependent upon the owner, a few key employees, a few large customers, or suppliers, it is not very attractive at all. It may not even be sellable.

A valuable business is one that can transfer to another owner, or the next generation, with little impact to the operations and decision-making. A buyer can come in and be successful in a very short time. That’s a valuable business. 

There are also many options available to a business owner besides just selling. You can sell a piece of the business and “take chips off the table” to secure your retirement. You can take out a loan to get much-needed investment capital to grow. You can sell some or all to your management team or employees.

The important takeaway is the following:

If you would like to investigate further, there are quite a few Silver Fox Advisors that have sold their businesses successfully (silverfox.org). You can also review my website for a copy of the Exit Planning Journey that outlines what you should do and when (www.richhallgroup.com).

There’s also a group in Houston called The Exit Planning Exchange. They have a Summit in February specifically designed for business owners looking for additional information (I’ll be speaking at the event). If you have an interest in attending as a business owner or participating as a sponsor, let me know at [email protected].

2024 Year-End Tax Planning Tips

Jim Griffing
Silver Fox Advisor
December 2024

As 2024 draws to a close, individuals are encouraged to review their tax strategies and identify opportunities to reduce their tax burden while strengthening their financial future. Whether managing personal finances, navigating changes in income, or adapting to new tax laws, strategic tax planning is key to maximizing financial potential. Proactive planning can help taxpayers take full advantage of available deductions, credits, and opportunities for future growth. Here are some important tax tips to consider.

Increase Federal Tax Withholding

If a taxpayer expects to owe taxes for the current year, increasing federal tax withholding can help avoid a large tax bill at filing time and prevent underpayment penalties. To avoid the fine, taxpayers must prepay at least 90% of their 2024 tax bill or 100% of their 2023 tax liability (110% if the taxpayer's AGI exceeded $150,000 in 2023).

To adjust withholdings, individuals can submit an updated W-4 form to their employer, which will allow more taxes to be withheld from their wages. Those receiving social security benefits should use the W-4V form for withholding, while pension and annuity recipients should complete the W-4P form.

For individuals taking required minimum distributions, the plan custodian typically withholds 10%. However, additional withholding can be requested if needed.

Max out 401k & IRA Contributions

Taxpayers have until December 31, 2024, to contribute the maximum amount to their 401(k) and similar workplace retirement plans. IRA contributions for the 2024 tax year must be made by April 15, 2025. For 2024, the contribution limit for a 401(k) is $23,000 ($30,500 for those aged 50 or older), and the limit for IRAs is $7,000 ($8,000 for those aged 50 or older).

Starting in 2025, employees aged 60 to 63 will be eligible to contribute an additional $11,250 in catch-up contributions to their retirement accounts.

Required Minimum Distributions

Taxpayers who turn 73 in 2024 must take their first required minimum distribution (RMD) by April 1, 2025, for the 2024 tax year. In addition, they must take their RMD for the 2025 tax year by December 31, 2025. Going forward, all future RMDs must be taken by December 31 each year.

For IRA withdrawals, the RMD is based on the total balance of all IRA accounts as of December 31 of the previous year. Taxpayers should refer to IRS Publication 590-B to calculate the correct amount. The RMD can be withdrawn from any combination of IRA accounts, but the total withdrawn must meet the required distribution.

The rules for 401(k) accounts are similar, but there’s a key exception: if the taxpayer is still employed at age 73 (or older) and doesn't own 5% or more of the company, they can delay the RMD from their current employer’s 401(k) plan until they retire. However, RMDs from former employers' 401(k) plans are still required once the individual reaches age 73.

It’s also important to stress the penalties for missing an RMD. If a taxpayer fails to take the required distribution on time, they face a steep penalty—up to 25% of the missed amount. If the error is corrected within two years, the penalty may be reduced to 10% or less.

Tax Loss Harvesting

Tax loss harvesting is a strategy employed by investors to reduce their tax liability by selling investments that have lost value, thereby realizing a capital loss. These losses can offset gains from other investments, potentially reducing taxable income. If the losses exceed the gains, up to $3,000 can be deducted against ordinary income each tax year, with any remaining losses carried forward to future years. This strategy helps improve after-tax returns while keeping the portfolio aligned with its financial goals.

Charitable Gifts & Donations

Taxpayers can claim qualified charitable contributions as a deduction on Schedule A (Form 1040), provided the donations are made to qualified organizations as defined by the IRS. Before donating, it is advisable to check with the organization or visit the IRS website to confirm eligibility, as not all charities qualify for tax-deductible donations. Special rules may apply to those that do qualify.

For non-cash donations, such as collectibles or artwork, the taxpayer must deduct the fair market value (FMV) of the item at the time of the donation. If the donated item is valued over $5,000, a qualified appraisal is generally required to determine the FMV. The appraisal must be completed by a qualified appraiser and attached to the taxpayer's tax return.

If the taxpayer receives a direct benefit from the donation—such as a meal or event tickets—they can only deduct the difference between the donation amount and the FMV of the item or service received.

Taxpayers can benefit from the annual gift tax exclusion when gifting money to family or friends. In 2024, the exclusion limit is $18,000 per person (or $36,000 for married couples). This limit increases to $19,000 per person (or $38,000 for married couples) in 2025. Gifts up to these amounts are not subject to gift tax and do not require the filing of a gift tax return.

Additionally, taxpayers aged 70½ or older can make charitable donations directly from a traditional IRA through a qualified charitable distribution (QCD). Up to $105,000 can be transferred annually from an IRA to a qualified charity. For those aged 73 or older, QCDs also count toward satisfying the required minimum distribution (RMD) obligation. These distributions are not taxable, and no deduction is allowed for the contribution.

If both spouses are aged 70½ or older and each has an IRA, they can each make QCDs of up to $105,000 per year. This means a married couple could potentially exclude up to $210,000 from their taxable income through QCDs.

Medical Expenses

Taxpayers may deduct qualifying medical expenses incurred for themselves, their spouses, and dependents throughout the tax year, but only for amounts that exceed 7.5% of their adjusted gross income (AGI). This deduction applies only to expenses not covered by insurance or reimbursed by other means. According to the IRS, "medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatments affecting any structure or function of the body."

Taxpayers who plan to itemize their medical expenses should ensure that any additional qualifying costs are incurred before the end of the year to maximize the deduction.

To claim itemized deductions, the total of eligible expenses must exceed the standard deduction for the taxpayer's filing status. For tax year 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household. If the sum of itemized deductions—such as mortgage interest, state and local taxes, and charitable contributions—exceeds the standard deduction, taxpayers may reduce their tax liability by itemizing. However, if the total of the itemized deductions is less than the standard deduction, taxpayers will benefit more from claiming the standard deduction.

These are just a few tax planning strategies that can help taxpayers prepare for the upcoming year. To ensure you’re maximizing your tax opportunities, we invite you to schedule a consultation with our experienced team of tax professionals. Contact our office at 281-491-8866 for more information. We are here to assist you in navigating these strategies and optimizing your financial planning for the year ahead.