Pharmacy Transactions and Capital Gains Tax for Florida

By Brad MacLiver
Authorship and profile at Google


What is a capital asset and how would it affect you, a Florida pharmacy business owner in selling your pharmacy?

In this case, just looking at a Florida pharmacy business and not the personal possessions of the pharmacy owner, if the Florida pharmacy owner decided to sell their business, it now becomes the “capital asset.” Now the pharmacy owner would look at the variance in the price they paid for the pharmacy business (the basis), and the amount the pharmacy business sells for, whether for profit or loss, and this is considered a “capital gain or loss” by the federal government and must be reported and can be taxed.

Investment income is another way capital gains may be referred to due to its relation to real assets, such as financial resources, property, and intangible assets, such as goodwill.

With the current economic down turn, the ability to locate financing for a potential Florida pharmacy business buyer is more difficult and will be in lesser amounts if attained; and selling the pharmacy business for solid profit is extremely difficult. Couple this with the probability the seller of the Florida pharmacy business may have to reduce the asking price to allow buyers the ability to attain financing, and even more importantly, still pay a higher percentage of taxes.

How can an owner of a Florida Pharmacy business combat these issues? Believe it or not, there are some good strategies out there to do just that, but first the pharmacy owner needs a specialist in the pharmacy business industry that knows these strategies and tools. Washburn & Associates are these specialists that know the in and out of selling a Florida pharmacy for the greatest profit available, while paying the least in taxes.

One tool, but not the only one, available is the “Charitable Remainder Trust” or CRT; this used to help with the capital gains tax burden.

Now, what is a CRT? Legally described as “Split Interest Trust,” which are used due to the mix of charitable giving and personal financial positions; CRT’s may lesson the tax liabilities, enhance the pharmacy business owners finances while allowing for charitable donations.

Charitable donations create a CRT when a pharmacy owner donates from their own assets, such as money, real estate, and so forth, and are donated to this special type of Trust. This trust is put in place for a specific time period or until the donor’s death; and during this period the pharmacy owner may receive income and if desired, purchase life insurance to provide for their heirs after they are gone from this Trust’s assets, and without state tax liability. Remember, CRT’s are there for use by financial specialist in the pharmacy business industry, such as Washburn & Associates, to increase the pharmacy owner’s assets and charitable donations by understanding the federal government’s strict and complex tax laws covered in the Internal Revenue Code 644, that say when and how a CRT can be set up.

The bottom line is, the Florida pharmacy business owner, considering selling their pharmacy, wants to receive the best money for their pharmacy business. And by consulting with the pharmacy business industry specialists at Washburn & Associates the pharmacy business owner can be assured they will glean the best from their business investment.

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Florida Buy-Sell Agreements for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When an FL pharmacy is owned by two or more people the stockholders/partners should have a Buy-Sell Agreement. A buy-sell agreement is a written document that provides the procedures and governs the future sale of the pharmacy business.
               
Pharmacy buy-sell Agreements protect the interest of the parties who own the pharmacy and directs the actions triggered by a stockholder leaving the business due to death, disability, divorce, dissolution, or retirement. The agreement will govern how and when the shares of the pharmacy business can be sold, or transferred. It will also provide guidance as to how the pharmacy will be valued along with the obligations of the remaining shareholders of the pharmacy in Florida.

Buy-sell agreements are important because the different elements of a future sell are predetermined and won’t need to be negotiated during a heated dispute, or during a grieving period. It provides both the stockholder and the family a comfort level that when the inevitable time comes for an exit strategy that the process was thoroughly thought out in advance.

Disadvantages of not having a buy-sell agreement between Florida pharmacy owners is that a disability may leave one partner working more and another not adding to the productivity. In the event of a death, without an agreement, one partner may be left with a nonproductive heir, or a new partner may be inserted that has personality conflicts with the surviving partner. The wrong partner could be devastating for the pharmacy business.

There are various types of buy-sell agreements such as: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, Wait and See Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sell agreements are also known as a Business Will or a Buyout Agreement.

Potential elements of a Buy-Sell Agreement:
1. Stockholders names and the number of shares and voting rights of each. 
2. Guidance for the certified Florida pharmacy valuation and purchase of a stockholder’s shares.
3. Mutual covenants and considerations.
4. Restrictions on transferring, purchasing or encumbering the company’s stock.
5. Protocol in the event of a shareholder’s divorce or termination of a shareholders employment.
6. Obligation to buy/sell shares from an estate.
7. Purchase of insurance to ensure that obligations can be met.
8. Purchases of stock paid either in lump sum or by instalments.
9. Solutions should a breach of the agreement or default of payment occur.
10. The right to inspect books and records until transfer is complete.
11. Amendments and notices for legal matters or offers.
12. The enforceability of the agreement, binding effects, and arbitration procedures for disputes.
13. Process for liquidator or dissolution of the corporation.
14. Maintenance for the premises during a transition.
15. Preservation of the representations and warranties.
16. The terms of transfer.
17. Bill of Sale.

To make certain that the required money is available, buy-sell agreements will typically be funded with a life insurance policy. In the event that one of FL pharmacy owners dies, the life insurance settlement will provide necessary funding for the remaining pharmacy owner to buyout their partner's shares from the estate.

Life insurance coverage for each partner needs to be in place.  With no way to accomplish the purchase of the pharmacy shares, the buy-sell agreement is effectively non-functional. As the business grows and develops the amount of insurance need to be adjusted to provide an adequate coverage. Without the insurance the surviving stockholder may not have enough cash to satisfy the amount required to buy out the estate - leaving the survivor with an unwanted partner.

To have the adequate insurance coverage and to determine the specifics of the buy-out terms, a certified pharmacy business valuation is needed. There are a large number of companies that provide business valuations. Due to the dynamics and current market conditions of the Florida pharmacy industry a valuation firm should have extensive pharmacy experience. Simple accounting formulas and multipliers will not provide an adequate, or realistic, valuation for a pharmacy business.

Florida Pharmacy buy-sell agreements are extremely important documents that need to be completed with seriousness and care. Even with a long standing partnership, it is only too late to create a buy-sell agreement when an event has already occurred....that would require the document.

Tips for FL Pharmacy Owners:
1. Buy-Sell Agreements are critical documents that should not be taken lightly. Consult a licensed professional.
2. Documents must address the proper laws and regulations which vary from state to state. Seek the proper guidance.
3. Premiums for insurance that will fund the buy-sell agreement might be deductible.
4. Ensure that the Florida pharmacy valuation is performed by an established FL pharmacy industry expert.