As the most sophisticated tax strategists in the Employee Stock Ownership Plan (ESOP) community, we have developed solutions that save our clients millions of dollars as compared to other solutions.
Lazear’s proprietary 1042 Solutions will save selling shareholders between $2 million and $3.3 million per $10 million of Taxable Gain (depending on state tax rates).
In a typical ESOP, the Seller’s cash at closing is ~25% of the Taxable Gain. It’s very difficult to purchase QRP equal to 100% of the Gain when the Seller’s cash at closing is only ~25% of the purchase price.
To finance the purchase of your QRP, Banks will loan up to 90% of the FRNs face value. Using leverage enables the purchase of Floating Rate Notes equal to 100% of the Taxable Gain.
The FRN loan will require annual interest expense on the 90% loan and will continue for the rest of the Seller’s life.
In order to approve the loan the bank will require the Seller’s personal guarantee.
One of the primary benefits of 1042 Tax Strategies is the ability to defer capital gains tax on selling qualified securities to an ESOP. This deferral allows business owners to preserve a significant portion of their wealth, providing greater financial flexibility and resources for future endeavors.
In addition to tax deferral, 1042 Tax Strategies offers business owners the opportunity to diversify their investment portfolios. Owners can mitigate risk and enhance long-term wealth accumulation by reinvesting the proceeds from selling qualified securities into alternative assets.
1042 Tax Strategies are instrumental in preserving the wealth accumulated by business owners over years of hard work and dedication. Owners can safeguard their financial security and ensure a smooth ownership transition by strategically managing tax liabilities and reinvesting proceeds into tax-advantaged assets.
Beyond tax advantages, 1042 Tax Strategies facilitate the creation of a legacy of employee ownership. By selling shares to an ESOP, business owners empower their employees to become stakeholders in the company’s success, fostering a culture of shared ownership and incentivizing long-term commitment and performance.
Lazear’s proprietary 1042 Solution eliminates interest expense and provides other significant economic benefits.
Business Case ($100MM Example):
Taxes saved=$25MM
Equity in Lazear’s 1042
Solution=$15MM
Even if the equity in the 1042 Strategy disappeared, the Seller will have a net tax savings of $10MM
Lazear’s team of tax attorneys and CPAs will guide you through the complexities of establishing a 1042 Tax Solution. Our consultative partnership model unites our team with yours to build a unique strategy that achieves your goals.
Our approach combines decades of expertise in finance, taxation and ownership transition with a deep understanding of the ESOP process to create a personalized 1042 Solution that achieves your goals. Click here to learn more about Lazear’s Proprietary 1042 Solution.
Ready to explore the benefits of 1042 Tax Solutions for your business? Schedule a consultation with our experienced team at Lazear today. Let us partner with you to develop a customized ownership transition plan that maximizes tax efficiency, preserves wealth, and fosters a legacy of employee ownership. Contact us now to take the first step towards a prosperous future for your business and your employees.
© 2023 Lazear Capital Partners, Ltd. All rights reserved.
© 2023 Lazear Capital Partners, Ltd. All rights reserved.