By Wes Lyon, CPA, CFP^®

Your practice sale represents one of the largest financial transactions in your life. Proper planning is required to minimize the federal and state income taxes on the sale, leaving you with the maximum after-tax proceeds. Here’s how we used a little-known strategy to save a client over $180,000 in taxes on his practice sale.

The Tax Cuts and Jobs Act (TCJA) limited the amount of state income tax, sales tax, and property tax that can be deducted on your personal income tax return to no more than $10,000 collectively. That law change spurred a large migration of high-income taxpayers out of high tax states (particularly New York and California) into no-income tax states, such as Florida and Texas. 36 states and New York City have now passed workaround provisions, converting business owners’ personal state income taxes into deductible business taxes that avoid the $10,000 cap, to attract (and retain) high income taxpayers.