My wife and i earned more money than I thought we would earn. I know this is a problem most people would like to have, and i am not complaining! I started a better paying job in March. My small business income was also more than I predicted resume it would be for the year. The net result of these changes is that we had more income than i anticipated and we will need to reduce our taxable income or pay extra money in April when we file our taxes. I dont want to pay the taxes, so i need to find methods of reducing our taxable income. Day job income, my salary at my new day job is higher than my previous job, which means I will owe more taxes. When I started my job back in March I was also beginning to earn a little more with my business, so i decided I should increase the withholding amount on my w-4.
Tax and Accounting Considerations Implications of Tax Considerations for deal Structuring If a transaction is taxable, it is likely that the target firm will demand an increase in purchase price to compensate shareholders for their tax essay liability. The increase in the purchase price may impact form of payment since buyer may maintain pv of transactions total cost by deferring some portion of purchase price. If buyer wants to avoid eps dilution by issuing stock, the buyer will desire to structure the transaction as taxable by buying stock or assets for cash, notes, or some other form of payment If buyer concerned about preserving cash and targets favorable tax attributes. buyer may be willing to pay a somewhat higher price if the target has net operating loss and tax credits carryovers. Yesterday i wrote about how to take advantage of some year end tax moves to save money on your taxes when you file them next year. My wife and I had a few changes to our financial situation this year that will affect our taxes, and because of these changes we need to take advantage of some of the year end tax moves i outlined. My tax Situation and How i will Reduce my taxes. I think i will owe a lot of money on next years taxes.
Both the parent and the entity to be spun-off must have been in business for at least five years prior to the spin-off. Split-off: A portion of the original company is separated from the parent, and shareholders in the original company may exchange their shares for shares in the new entity. No new firm created. Split-up: The original company ceases to exist, and one or more new companies are formed from the original business. for these reorganizations to qualify as tax-free, the distribution of shares must not be for the purpose of tax avoidance. Tax and Accounting Considerations Forward Triangular Stock merger Acquiring Company parents Stock/Cash Subsidiarys Stock subsidiary (Shell created by parent and funded by parents parents cash or stock) Stock target Firm (Merges assets and liabilities with the parents wholly-owned subsidiary) Target Assets and liabilities Target Shareholders. Tax and Accounting Considerations reverse Triangular Stock merger Target Firm (Receives assets and liabilities of acquiring firms wholly owned subsidiary) Acquiring Company parents Voting Stock subsidiarys Stock subsidiary (Shell created by parent and funded by parents voting stock merged into target firm) Parents Stock subsidiarys. Tax and Accounting Considerations Summary of Alternative tax Free structures Type of reorganization Maximum Cash payment Required to purchase majority of Assets Type of Stock commonly Used When A 50 under advance ruling from irs no voting on nonvoting Substantial portion of price is cash.
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2 x 42, 000 8, 400, 000 Equal: goodwill attributable to minority interest: 1, 600, 000. Tax and Accounting Considerations Alternative tax Structures mergers and acquisitions can be structured as either tax-free, partially taxable, or wholly taxable. taxable Transactions: The buyer pays primarily with cash, securities, or other non-equity consideration for the target firms stock or assets Absent a about special election, tax basis of targets assets will not be increased to fmv following a purchase of stock 338 election: buyer can elect. Taxes must be paid on any gains on acquired assets. Impact of asset write-up on eps and potential taxable gains must be weighed against improved cash flow from tax savings tax-Free transactions: mostly buyer stock used to acquire stock or assets of the target buyer must acquire enough of the targets stock and assets. Tax and Accounting Considerations Alternative tax-Free structures a tax-free transaction is also known as a tax-free reorganization since it must satisfy the continuity of interests and business enterprise principles Of the 8 different types of tax-free reorganizations (Section 368 of the Internal revenue code the.
Tax and Accounting Considerations Continuity of Interests and Business Enterprise Principles purpose: to ensure that subsidiary mergers do not resemble sales, making them taxable events continuity of interests: A substantial portion of the purchase price must consist of acquirer stock to ensure target firm shareholders. Continued involvement intended to demonstrate long-term commitment by acquiring company to the target. Tax and Accounting Considerations Type a reorganization to qualify as a type a reorganization, transaction must be either a statutory merger or consolidation no limits on composition of purchase price no requirement to use acquirer voting stock no limit on amount of target assets that. Tax and Accounting Considerations Type b stock for Stock reorganization to qualify as a type b reorganization, acquirer must use only voting stock to purchase at azam least 80 of the targets voting stock and at least 80 of the targets non-voting stock cash may. Tax and Accounting Considerations Type c stock for Assets reorganization to qualify as a type c reorganization, acquirer must purchase at least 80 of the fair market value of the targets assets as well as certain specified liabilities. The acquirer must use only voting stock The target must dissolve following closing and distribute the acquirers stock to the targets shareholders for the canceled target stock Advantages: Acquirer need not assume any undisclosed liabilities Acquirer can purchase selected assets Disadvantages: technically more difficult than. Tax and Accounting Considerations Type d reorganizations type d divisive reorganizations apply to spin-offs, split-ups, and splitoffs Spin-Off: Stock in a new company is distributed to the original companys shareholders according to some pre-determined formula.
3 fair value is the amount at which an asset could be bought or sold in a current transaction between willing parties with acces to the same information. Tax and Accounting Considerations Purchase (Acquisition) Method of Accounting requirements: record acquired tangible and intangible assets and assumed liabilities at fair market value on acquiring firms balance sheet. record the excess of the price paid (PP) plus any noncontrolling interests over the targets net asset value (i. E., fmvta - fmvtl) as goodwill (GW) on the consolidated balance sheet, where fmvta and fmvtl are the fair market values of total acquired assets and liabilities. These relationships can be summarized as follows: purchase price: pp fmvta fmvtl fmvgw goodwill estimation: fmvgw pp fmvta fmvtl pp - (fmvta - fmvtl).
Tax and Accounting Considerations Example of Estimating goodwill On January 1, 2009, Acquirer Inc. Purchased 80 percent of Target Inc. S 1, 000 shares outstanding at 50 per share for a total value of 40, 000 (i. 8 x 1, 000 x 50). On that date, the fair value of the net assets acquired from Target was 42, 000. What is value of the goodwill shown on Acquirers balance sheet? What portion of that goodwill is attributable to the minority interest retained by targets shareholders? Goodwill shown on Acquirers balance sheet: fmvgw pp (fmvta fmvtl) 50, 000 - 42, 000 8, 000 goodwill attributable to the minority interest: Note that 20 percent of the total shares outstanding equal 200, 000 shares with a market value of 10, 000 (50. Therefore, the amount of goodwill attributable to the minority interest is calculated as follows: fair Value of Minority Interest: 10, 000 Less: 20 fair value of net acquired assets (.
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E., by firm; shareholder on sale proceeds possible liquidating dividend) Allocating losses to owners. Payment legal Considerations Things to remember deal structuring addresses identifying and satisfying as many of the primary objectives of the parties involved and determining how risk will be shared. deal structuring consists of determining the acquisition vehicle, post-closing organization, the form of payment, the form of acquisition, legal form of selling entity, and accounting and tax considerations. Choices made in one area of the deal are likely to impact other aspects of the transaction. Tax and Accounting Considerations Accounting Treatment Background Statement of Financial Accounting Standard 141 (sfas 141) required effective 12/15/01 purchase review accounting to be employed for all business combinations by allocating the purchase price to acquired net assets. Limitations included difficulty in comparing transactions and mixing of historical and current values. Effective 12/15/08, sfas 141 R required that acquirers must recognize, separately from goodwill, 1 identifiable assets, and assumed liabilities at their acquisition date 2 fair values; 3 recognize goodwill attributable to non-controlling shareholders; revalue acquired net assets in each stage of staged transactions to their. Date is the point at which control changes hands (i.
corporation shareholders generally prefer a stock for stock transaction to defer their tax liability. limited liability companies, and partnership investors may be indifferent to a sale of assets or stock. Payment legal Considerations Accounting Considerations contingent payouts valued at acquisition date (closing) and revalued as new data becomes available deals valued at closing rather than announcement date goodwill periodically reviewed for impairment Implications potential increase in server earnings volatility make earn-outs less attractive as form. Payment legal Considerations Tax Considerations: Impact on Seller Shareholders business combinations may be tax free partially taxable wholly taxable non-taxable transactions occur when mostly acquirer stock is used to buy substantially all of the targets stock or assets. taxable transactions occur when the acquirer uses something other than its own stock buys an insufficient amount of the targets stock or assets. Payment legal Considerations Tax Considerations: Impact on Combined Businesses Shareholders avoiding double (i. E., by firm and shareholder) or triple taxation (i.
substantial differences arise between what. Payment legal Considerations Post-closing Price Adjustments mechanisms rely on an audit of the target company to determinr its true value usually involve escrow accounts with escrow accounts, the buyer retains the portion of the purchase price until the postclosing audit is being finished. Payment legal Considerations Earn-Outs and Other Contingent payments An earn-out agreement is a financial contract in which the portion of the purchase price of a company is to be paid in the future, contingent on the realisation of a previously agreed-on future earnings or other. Payment legal Considerations Earn-Outs - example purchase price is 100 after the closing and the seller receives 4 times the excess of annual average nocf over the baseline projection at the end of three years not to exceed 35 mln nocf year 1 year. Payment legal Considerations Other forms of adjustments contingent value rights commitments by the buyer to pay additional cash to the seller if the share price of the buyer falls below a specified level at some date in the future distributed or Staged payouts rights, royalties. Payment legal Considerations Form of Acquisition: buyers Perspective cash purchase of assets (Permits cherry picking, asset write-up; limits liabilities, no minority owners; but lose tax attributes and assets not specified in contract and incur transfer taxes) cash purchase of stock (Assets transfer automatically but responsible. Payment legal Considerations Legal Form of Selling Entity a sellers concern about the form of acquisition (i. E., sale of assets or stock) may depend on its own legal structure. corporations are subject to double taxation, while limited liability companies, and partnerships are not.
Acquisition vehicle post-closing organization Form of payment Form of acquisition Legal form of selling entity Accounting Considerations Tax considerations. M a pdf deal Structuring Process Factors Affecting Alternative forms of Legal Entities. Control by owners Management autonomy continuity of ownership Duration or life of entity ease of transferring ownership Limitation on ownership liability ease of raising capital Tax Status. M a deal Structuring Process Acquisition Vehicle The legal entity used to acquire the target and generally to continue to own and operate the acquired company after closing Acquirers Objective (s) Maximizing control Facilitating postclosing integration Minimizing or sharing risk potential Organization Corporate or divisional. M a deal Structuring Process Post-Closing Organization Acquirers Objective (s) Integrate target immediately centralize control in parent Facilitate future funding Potential Organization Corporate or divisional structure Implement earn-out Preserve targets culture Exit business in 5 -7 years Assume minority position Minimize risk minimize taxes Pass. Payment legal Considerations Form of payment cash (Simple but creates immediate seller tax liability) non-cash forms of payment common equity (Possible eps dilution but defers tax liability) Preferred equity (Lower shareholder risk in liquidation) convertible preferred stock (Incl. Attributes of common pref. ) debt (secured and unsecured) (Lower risk in liquidation) real property (may be tax advantaged through 1031 exchange) some combination (Meets needs of multiple constituencies) Closing the gap on price balance sheet adjustments (Ignores off-balance sheet value) earn-outs or contingent payments (may shift risk.
Contractors questions: Can my psc write - off debt tax
Structuring the deal. M a deal Structuring Process. Payment legal Considerations. Tax and Accounting Considerations. M a deal Structuring Process deal-Structuring Process The deal-structuring process is mainly about satisfying as many of the primary objectives (needs) of the parties involved and determining how risk will be shared reasonable Price risk sharing Stock in lieu of cash buyer Carrying sellers note. M a deal Structuring Process deal structuring involves identifying The primary goals of the parties involved in the transaction; Alternatives to achieve these goals; and how to share risks. The appropriate deal structure is that which needed satisfies as many of the primary objectives of the parties involved as necessary to reach agreement subject to an acceptable level of risk. M a deal Structuring Process key components of the dealstructuring Process (fig.