How To Lower Your Tax Bracket In Retirement (Part 2): Adding The Sale Of A Business

March 2021

Jim Farmer is Managing Partner of Financial Strategies Group, a leader in the insurance industry providing clients with practical solutions.

In Part 1 of “How To Lower Your Tax Bracket In Retirement,” I showed how to attain a $500,000 retirement income goal while only paying an effective tax rate of 6%. In Part 2, I am going to add the sale of a business to the financial plan and still achieve an effective income tax rate of less than 10%. 

Aside from lowering the retirement tax bracket, let’s set a goal of selling the business for more money, designing a succession plan (live or die), increasing the cost basis of the business, creating more tax deductions at the time of the sale, retaining select key employees and providing a more secure retirement for the owner.

As a hypothetical example for this article, let’s say that a business owner named John Henry is 53, married and has one son, Jacob Henry, who is in the business. John’s business has an estimated value of $4 million and includes three key employees. He would like to retire at age 65 and is looking for solutions to pay as little taxes as possible. Jacob is 25 years old and would like to take over the business in the future. 

Instead of waiting until John is 65, it makes sense to establish a team of professionals as soon as he can to help him get his books in order and the best offer for his business. As a business owner, you should be working with your CPA to help the tax returns look their best, your attorney to draft a buy-sell agreement and retention plan, and your local bank to help the business apply for a loan. I call this making someone “bankable.”