Emily inherited a restaurant from her father in 2016. At the time of inheritance, the restaurant was worth $750,000, including the land. After keeping the restaurant for 6 years and investing $50,000 in the restaurant, Emily sold it for $1,400,000. Her income was mostly dependent on the restaurant, so it fell to nearly $0 after the sale. This yielded Emily $600,000 in capital gain, which would be taxed at 28% ($170,106). She would have $1,229,894 remaining from the sale as a lump sum. Alternatively, she decided to take $200,000 as upfront cash and put the remaining $1,200,000 into a Structured Installment Sale. This would give her $12,441 per month over a span of 10 years. Emily would be taxed $4,968 on the upfront cash and $32,580 total over the course of 10 years on her monthly payments. This means Emily would be saving $132,558 in tax and a 9.5% savings including interest with a Structured Installment Sale.

Benefits In Business

Flexible Financing Options

Structured installment sales provide flexibility in financing the purchase of a business. Buyers may not have to secure traditional bank loans or seek external financing, which can be challenging to obtain, especially for small businesses or startups. Sellers can negotiate the terms and conditions of the sale to fit both parties' needs.

Continuity of Business Operations

Structured installment sales can help ensure a smooth transition of the business from seller to buyer. The seller may stay involved during the transition period, assisting with training, customer retention, and maintaining business relationships.

Higher Purchase Price

Sellers can often command a higher purchase price for their business by offering financing to the buyer. This can be appealing to buyers who may be willing to pay a premium for the convenience and flexibility of installment payments.

Tax Benefits

Sellers may benefit from certain tax advantages when structuring the sale as an installment sale. This can allow sellers to spread the gain over several years, potentially reducing their overall tax liability in the year of sale.

Attracting a Wider Pool of Buyers

Seller financing can make it easier for a broader range of buyers to enter the market. Buyers who may not qualify for traditional bank loans or have limited access to capital can still pursue their entrepreneurial ambitions with seller financing.

Reduced Risk for the Seller

Sellers in structured installment sales typically retain some control over the assets or business until the full payment is received. This mitigates the risk of non-payment or default by the buyer.

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