Pharmacy Transactions and Capital Gains Tax for the State of Alabama

By Brad MacLiver
Authorship and profile at Google


How could a “Capital Asset” affect you, an Alabama pharmacy owner if you want to sell your pharmacy business; and what is a capital asset anyhow?

Start by only looking at your Alabama pharmacy and not any of your personal belongings, and now try and sell your pharmacy; what you will then have is your pharmacy business as a capital asset. Look now at the difference in the cost you paid for the pharmacy (the basis), and the sum the pharmacy sells for, be it profit or loss, and this is what is regarded by the United States government as either a capital gain or loss and has to be reported and may be taxed.

Capital gains can also be called investment income due to its relation to real assets, such as property, intangible assets such as charitable donations, and financial resources.

With the current economic dip, the capability to attain financing for a potential pharmacy business buyer is difficult, and the available cash will be in smaller amounts. Also, selling your pharmacy business for a profit may be lower due to the higher probability that you, the Alabama pharmacy owner, may have had to reduce your asking price to allow buyers the opportunity to obtain financing; and in the end you may pay a higher percentage of taxes.

How can you the owner of an Alabama Pharmacy combat these issues? Well there are good strategies to do just that, but first you the pharmacy owner should have a specialist that is an expert in the pharmacy business industry, with the tools and strategies required to assist your pharmacy business. Washburn & Associates are these specialists that know how selling your pharmacy for the greatest profit, with the least in taxes is the bottom line.

“Charitable Remainder Trust” or CRT is one tool that may be helpful with the capital gains tax burden. Now, Classifying a CRT; legally explained as “Split Interest Trust,” due to the mix of charitable donations and personal financial positions; CRT’s may decrease the tax liabilities, and increase your pharmacy’s finances while allowing for goodwill giving.

Goodwill donations are what create a Charitable Remainder Trust when you an Alabama pharmacy owner give from your own assets, such as real estate property, cash, and other such items, to this special type of Trust. This Trust is then put in place for a defined time period or until the your, (the donor’s) death; during this time you the pharmacy owner can receive income as well as buy life insurance, if desired, to provide for your designated heirs after you are gone; this would come from this Trust’s assets, and would be without state tax liability. CRT’s are there for use by financial specialists in the pharmacy business industry, like Washburn & Associates, to increase the your pharmacy’s assets and charitable donations by understanding the federal government’s intricate and stringent tax laws written in the Internal Revenue Code 644, that denote how and when a CRT can be set up.

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Buy-Sell Agreements for Alabama Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When an AL 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.
                 
Alabama 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.

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 pharmacy owners in Alabama 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 AL 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 Alabama 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 ability to meet obligations.
8. Purchase of stock paid in lump sum or by installments.
9. Remedies for breach of the agreement or default of payment.
10. Until transfer is complete the right to inspect books and records.
11. Amendments and notices for offers or legal matters.
12. Enforceability of the agreement, the binding effects, and arbitration procedures for disputes.
13. Process for dissolution, or liquidation, of the corporation.
14. Maintaining the premises during a transition.
15. Preserving representations and warranties.
16. The terms of transfer.
17. Bill of Sale.

To ensure that the money required is available, buy-sell agreements are often funded with a life insurance policy. Should the death of one of the AL pharmacy owners occur, the life insurance settlement will provide the funds for the remaining pharmacy owner to buyout the partners shares from the estate.

Life insurance coverage for each partner needs to be in place, because without a way to accomplish the purchase of the pharmacy shares the buy-sell agreement will not be functional. As the business expands and develops, the amount of insurance need to be adjusted to provide an adequate coverage. Without insurance, the surviving stockholder could possibly not have enough cash to satisfy the required amount to buy out the estate, which will leave the survivor with an unwanted partner.

A certified Alabama pharmacy business valuation is required in order to have the adequate insurance coverage and to determine the specifics of the buy-out terms. There are several companies out there who provide business valuations and, due to the current market conditions and dynamics of the pharmacy industry, it is best to consult a valuation firm that has extensive pharmacy experience. Multipliers and simple accounting formulas do not provide adequate or realistic valuations for an AL pharmacy business.

Pharmacy buy-sell agreements are critically important documents that must be prepared with seriousness and care. Even with a partnership that is long-standing, by the time an event occurs that will require that document, it will already be too late.

Tips for Alabama Buy-Sell Agreements: 1. These agreements are critical documents that should never be taken lightly. Make sure to consult a licensed professional.
2. Documents must take the proper laws and regulations, which vary from state to state, into account, so seek the proper guidance.
3. It is possible that the premiums for insurance that will fund the buy-sell agreement are deductible.
4. Make certain that the Alabama pharmacy valuation is performed by an established AL pharmacy industry expert.