Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here again with Martin Euson, one of our tax directors on our transaction advisory services team. Martin welcome back to the Playbook.
Martin: Thank you, Jen.
Jen: So we’ve been talking a lot about transaction advisory and we’ve been talking about due diligence and some of the other components, I’ve heard something about tax structuring; what is that?
Martin: I think I can best explain tax structuring Jen by way of example.
Martin: Let’s say I’ve got this case of mints here, this very valuable case of mints. Let’s say that you and I engage in a transaction and I’m going to sell you these mints for $100.00. When it comes to the amount of tax I’m going to have to pay out of this sale I can either pay 0.
Jen: I like 0.
Martin: 0 is good. I could possibly pay $23.00/$24.00 in tax or I could possibly pay $50.00 or slightly higher. So all of that – the amount of tax that I’m going to pay on the sale is directly related to how the transaction is structured from a tax perspective. That’s the impact of tax structuring.
Jen: So you’ve sold me these mints, you’ve told me that you have to pay tax on it – anywhere from 0 to $60.00 – that’s a broad range. What goes into that?
Martin: That comes down to how the transaction is structured, Jen. You have three different variations; you could have an asset sale, you could have a stock sale and you could have a so-called tax-free reorganization and that’s what results in the lower tax of 0.
Jen: Sounds like that’s a little complex and that somebody would need to get a tax professional in there to help them out with that.
Martin: I agree, it can get very complex.
Jen: All right, perfect. Well, we’ll get you to talk a little bit more about that and we can delve a little bit deeper into each one later. Can we get you back?
Martin: Thank you, yes.
Jen: Perfect. To learn more about how we can assist you with potential transactions visit PKFTexas.com/transactionadvisoryservices. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week or another chapter.