Large future capital gain

[Larry2623]

I invested in a private company 5 or so years back. The people running things say they will either sell the company in 2018 or if they do another capital raise 2022. When this sells I was told to expect to have low 7 figure capital gain..1-3 depending on sale year. I know nothing is 100% until the sale, but I was hoping to get some advice on who to talk to when this gets closer...CPA, tax advisor, fin planner? Main concern is minimizing taxes.

Thanks for any advice...

[PFInterest]

Spread out your pay or don't get paid.

[MN Finance]

Clearly impossible to help without the details, but the previous post is about right. The only likely way to minimize taxes is to have it be a structured sale. If part of your deal involves real estate there could be other options.

Regardless you'd be deferring tax, not eliminating. Meet with your CPA

[Larry2623]

It is private stock in a casual dining restaurant chain...currently an s corp.

[Larry2623]

Also I am a member of the 2017 retirement class...if that makes a diff.

[Cuzz35]

Do you materially participate in the company or are you a passive investor? The gain will likely be subject to net investment income tax (3.8%) if you are passive. Also if you are passive, do you have suspended passive losses that would be freed up upon sale? This would help reduce the gain a bit if you do.

Consider donating shares to a donor advised fund before the sale occurs. This would allow you to avoid the gain while receiving a charitable deduction for the value of the shares donated. You would need to make sure the company would allow you to transfer your shares. You would also need to consider how "ripened" the deal is before it is final. If the deal is virtually done, the IRS will maker you recognize the gain even if you properly transfer the shares and the DAF receives the sales proceeds.

You could also pre-fund future charitable donations to help minimize tax in what sounds like a windfall year for you.

Anyway, hope this helps.

[Larry2623]

thanks for info. I am passive. I do recieve the k1 loss statement each year that I may be able to use.

[H-Town]

thanks for info. I am passive. I do recieve the k1 loss statement each year that I may be able to use.

I would recommend you at least talk to a CPA tax advisor for windfall planning purpose. They will help you ask the right questions and have things in place to defer tax when the sale occurs. The tax code section 1031 allows like-kind-exchange should you want to structure the deal that way and keep defer tax until you retire. I also likes the charitable donation suggestion by the previous poster. It's a good option to maximize your itemized deductions, assuming you are not already phased out.

[InertiaMan]

+1 on the donor advised fund. I did that with a modest windfall (aged stock that was 95% gains) during my highest earning income year. Helped w/ the taxes that year, and has made charitable donations SO easy ever since.