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ha no. do the math on it and you'll see that a sale is far more profitable for equity holders than cashflowing profits for the same nominal amount. I.e. distrib
by alooPotato 6y ago
ha no. do the math on it and you'll see that a sale is far more profitable for equity holders than cashflowing profits for the same nominal amount. I.e. distributing $3.7M in profits yields you personally a lot less than having your equity purchased for $3.7M.
You're comparing apples and oranges - 500K/year of profits first needs to get taxed. Then distributed to shareholders pro-rata, then taxed again at the personal level. Also, you're assuming he could have made 500K year in profit from the very beginning.
- GoRudy 6y agoPass through entities wouldn't be subjected to the double taxation.
- alooPotato 6y agoYeah but you pay a higher tax rate and get no benefits of QSBS. Generally there is a lot more opportunity for tax optimization on sales than on income.
- arthurcolle 6y ago> higher tax rate Isn't this only if the distributions are immediate? Forgive me, not an expert in LLC v. corp structures but I have an LLC so I'm curious to hear your expanded thoughts. Thanks in advance.
- alooPotato 6y agoIncome tax rates are usually higher than capital gain tax rates.