Wyoming Pharmacy Transactions and Capital Gains Tax

By Brad MacLiver
Authorship and profile at Google


Almost everything you own and use for personal, or business, purposes is a capital asset. When WY pharmacy owners sell a capital asset, the difference between the amounts you sell it for and the amount you paid for it (the basis), is a capital gain, or a capital loss.

Capital gains may also refer to "investment income" that arises in relation to real assets, such as property, financial assets, and intangible assets such as goodwill. In the U.S., all capital gains must be reported and the appropriate tax paid.

When selling a pharmacy or a drug store in Wyoming, there are specific tax strategies that can be used to help offset the tax liabilities. Unless a professional is handling a large number of Wyoming pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner.

During this period of history where it is more difficult to finance a business, WY pharmacy sellers may already be required to lower their asking price, so a pharmacy buyer can qualify for the financing required. On top of the lower offers they will be required to pay higher percentages in taxes.

This is a dilemma for the pharmacy seller who wants as much money out of the deal as possible. For most pharmacy owners their business is the largest asset they will ever own and selling the business at a certain dollar amount has been part of their retirement and estate planning. Knowing they will need to cut out a larger chunk of the proceeds to give to the government will cause some pharmacy owners to reconsider their retirement plans. The good news is there are financial tools and strategies that allow the pharmacy owner in Wyoming to proceed with their plans.

One method to reduce taxes is the Family Foundation, a tax exempt/nonprofit organization which provides both tax advantages and control over philanthropic activities. Family foundations are traditionally private foundations get their funding from a small number of sources while they do not conduct widespread fund-raising activities. They may, however, receive gifts from friends and other limited sources. Family members will serve as the foundation's trustees, directors, and officers.  They can make grants or donations to other organizations as private foundations.  Forming a Family Foundation provides a number of advantages, including deductions in income tax, estate and gift tax exemptions, and the reduction or the elimination of other taxes altogether.

Another strategy currently available to reduce the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT’s are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT’s can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.

CRT’s are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor’s (Wyoming pharmacy owners) death. An individual (WY pharmacy owner or family member) can receive income from the Trust’s assets. Upon the donor’s death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.

Some tax strategies including the use of CRTs are not widely known. It would be advisable for pharmacy business owners to be aware of the different tools that are available in structuring a business transaction. They should also be aware that only a professional with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the strict IRS guidelines could be cause for increased taxes, penalties, and in some cases criminal charges.

Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.

You should consult a firm with extensive experience in pharmacy and drug store acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner large sums of money when a pharmacy in Wyoming is sold.

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Wyoming Buy-Sell Agreements for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When a WY 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 Wyoming 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 in Wyoming 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 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 Wyoming 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 WY Buy-Sell Agreement:

1. Stockholders names and the number of shares and voting rights of each. 

2. Guidance for the certified 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. Outlined process for the dissolution or liquidation of the corporation.

14. Maintaining the premises during transitional periods.

15. Preserving both warranties and representations.

16. Established terms of transfer.

17. Bill of Sale.

To make certain that the money required is available, it is common for buy-sell agreements to be funded with a life insurance policy. Should the death of a pharmacy owner in Wyoming occur, the life insurance settlement provides necessary funding for the remaining pharmacy owner to buyout the partner's shares from the estate.

Each partner needs to have life insurance coverage in place because without a plan to accomplish the purchase of the Wyoming pharmacy shares the buy-sell agreement serves no purpose. As the business develops and grows, the amount of insurance will need adjusting to provide adequate coverage. Without proper insurance, the surviving stockholder will potentially not have enough cash to satisfy the amount needed to buy out the estate, leaving the survivor stuck with an unwanted partner.

In order to have adequate insurance coverage and determine the details of the buy-out terms, it is necessary to perform a certified pharmacy business valuation.  There are quite a few companies that provide standard business valuations, but due to the dynamics and current market state of the WY pharmacy industry, a valuation firm should have extensive experience with Wyoming pharmacies. Simple accounting formulas and multipliers will not provide an adequate, or realistic, valuation for a pharmacy business.

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:

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 Wyoming pharmacy valuation is performed by an established WY pharmacy industry expert.