Your Invisible Goldmine: Using Personal Goodwill for Better Tax Planning

Jun 15, 2023

Guest Feature by Ben Golden, Certified Tax Planner and Certified Tax Coach 

Imagine you have a hidden treasure, buried right beneath your feet. You’re busy tending to your flourishing business garden, watering the plants, checking the soil, and soaking up the sunshine, unaware that you’re standing on a goldmine. This is what personal goodwill is like in the world of business.

So, what is this personal goodwill we’re talking about?

The world of business is an adventure. In every adventure, there’s a treasure waiting to be discovered. In the journey of a business owner, there’s a secret goldmine that’s often overlooked – personal goodwill. Like a hidden treasure chest, personal goodwill could become your secret weapon in tax planning, saving you a significant fortune when you decide to sell your business.

Now, you might be wondering, what is this invisible goldmine? Personal goodwill is like the charm of your favorite superhero, their charisma that draws people to them. It’s the relationships, reputation, skill sets, and the personal know-how that you, as a business owner, bring to your company. Think about that loyal customer who follows you no matter where you go, or that supplier who gives you priority because they like doing business with you. These are all components of your personal goodwill.

While this sounds like an enticing opportunity, it’s important to remember that leveraging personal goodwill comes with its own set of challenges. The first hurdle, as illuminated by the Bross Tax Court decision (Bross Trucking Inc., T.C. Memo 2014-107), is to establish that personal goodwill exists separately from corporate goodwill. This is a bit like proving that you have two superheroes in your team, each with their own distinct abilities. Personal goodwill, your superhero, is your reputation, your relationships, and your unique business acumen. However, the challenge is to show that these two superheroes are not one and the same. It requires evidence that your personal attributes and relationships are directly responsible for your business’s success, and not merely the business’s brand or products.

The second hurdle is making sure that your superhero isn’t tied down to your business. This means proving that you, as a business owner, have the right to sell your superhero’s services separately from the rest of your business. If you’ve signed an employment contract or a non-compete agreement that ties your superhero down to your business, it means that you can’t sell your superhero’s services separately from your business. So, to navigate this challenge, you need to show that no such contractual agreements exist.

Now, let’s imagine how this works in the real world. Say you’re selling your business. Typically, the sale price is subject to double taxation – once at the corporate level and then at the shareholder level when the proceeds are distributed. But here’s where your superhero, personal goodwill, swoops in to save the day. When a part of the sale price is allocated to your personal goodwill, that portion is taxed only once at the individual level, typically at a lower capital gains tax rate. This could result in significant tax savings, making the process of selling your business more beneficial for you.

The adventure of personal goodwill, while filled with potential pitfalls and challenges, also carries the promise of a treasure trove of tax savings. With careful planning, astute understanding, and the guidance of a trusted tax advisor, you could navigate these challenges and unlock the hidden goldmine of personal goodwill. So, gear up, business owners. It’s time to harness your personal goodwill superhero and make your business selling journey a victorious adventure!

 

Ben Golden is a Certified Tax Planner and Certified Tax Coach with offices in the Chicagoland area and Alabama. He has two sister companies (Golden Tax Relief LLC and IRS Trouble Solvers) that he manages.  Ranked among the Top 10 Tax Resolution Experts in the country, Ben Golden’s company, IRS Trouble Solvers LLC., focuses on Resolution. However, Ben’s tax planning company, Golden Tax Relief LLC also reached national notoriety by being in the top 500 fastest growing companies in the nation (Inc. 5000) last year… Ben earned his BS in Accounting from The University of Alabama in 1999, followed by an MS in Taxation from Golden Gate University in 2002. Ben is an Enrolled Agent, the highest designation provided by the Internal Revenue Service! Along with actively participating in his multiple businesses, Ben is also a member of the American Society of Tax Problem Solvers (ASTPS), American Institute of Certified Tax Planners (AICTP), President of Alabama Society of Enrolled Agents (ALSEA), member of National Association of Enrolled Agents (NAEA), National Society of Accountants (NSA), Tax Representative Network (TRN), National Tax Practice Institute Fellows (NTPI), is a Coach with Corvee, and is in several Mastermind groups.