New Tax Deferral Strategy for Business Brokers and Realtors

New Tax Deferral Strategy for Business Brokers and Realtors

The same tax deferral benefit enjoyed by contingency fee lawyers for years is now available for another group of professionals often looking for a sensible tax break:  Business Brokers and Real Estate Agents.

This is terrific news for any realtor or business broker who has always sought a way to safely and conveniently defer taxes on commissions they earn for implementing deals for their clients.  The benefits to this method of planning are many:

  • Deferring income taxes allows this group of professionals to balance out the highs and lows of a very cyclical business;
  • Sums deferred earn pre-tax interest offering the same advantage as 401(k) and similar plans;
  • Participants can arrange their income needs around marginal tax brackets to keep more of what they earn;
  • Brokers can potentially avoid or reduce their Alternative Minimum Tax (AMT) bite;
  • Those with long-range financial goals can secure their futures by arranging supplemental, tax-advantaged cash flows in their retirement years guaranteed by a highly rated life insurance company.

Typically, when a realtor or business broker facilitates a sale, they are paid a commission based on a percentage of the sales price of the business or property.  Commission is paid in the year of the sale at closing and the agent or broker promptly (and presumably begrudgingly) estimates the amount of this sum they need to set aside for Uncle Sam.

But now, thanks to a major life insurance company, successful agents and brokers can now arrange to more effectively manage their commissions.

Allstate Life, rated A+ by A. M. Best, announced today that they are rolling out this attractive option as an enhancement to the Structured Sale offering made available through a limited distribution channel several years back.  Through an arrangement with Allstate International Assignments, Ltd. which currently handles their Structured Sales offering, those who qualify can take advantage of this unique opportunity.

When compared to earning commissions, paying taxes and investing the remainder, some professionals estimate they would need to earn a rate of return well in excess of the historical stock market average just to equal what the Structured Commission pays (depending on assumptions made about future tax brackets).  The difference here, of course, is the lack of stock market risk since guaranteed payouts are considered “risk-free” in financial planning parlance.

CAVEAT:  Key to implementation is the phrase “those who qualify.”  The Business Broker or Realtor must be considered a “Service Provider” pursuant to Section 409A of the Internal Revenue Code.

But there’s more. 

Certain paperwork must be prepared by someone representing the life company (as of now, just Allstate) who has been authorized to implement these special-purpose transactions.  Because of the unique nature of this particular offering, the distribution channel has historically been limited to those familiar with the special paperwork and sequence of events which must be strictly adhered to in order for the matter to be properly consummated.  Do NOT assume your neighborhood insurance agent will be familiar with this.

So for now, since this particular missive has run longer than intended, suffice it to say “We Can Help!”  The Finn Financial Group is proud to be among a select group of firms in the United States chosen to help effectuate Structured Sales and the accompanying broker and agent commission deferral.  Call for an analysis or for additional information BEFORE the transaction is complete.  Because timing is everything, it’s critical the terms of the deferred commission be chosen before the sales agreement is finalize and the deal concluded.

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