Episode 26 - Buy-Sell Agreements Explained: The Tax Planning Behind Cross-Purchase and Redemption Agreements

Welcome to the second installment of our Buy-Sell Agreement series, where we move beyond the fundamentals and focus on one of the most critical aspects of any buy-sell agreement: tax planning. In "Buy-Sell Agreements Explained (Part 2): The Tax Planning Behind Cross-Purchase and Redemption Agreements," Daniel Rohr, CPA/PFS, EA, explores how the structure of a buy-sell agreement can have lasting tax consequences for business owners and why choosing the right approach is just as important as having an agreement in place. This episode explains the differences between cross-purchase and entity redemption agreements, including how each structure works, when one may be more advantageous than the other, and the tax implications business owners should understand before signing an agreement. Daniel discusses basis adjustments, ownership changes, funding considerations, and how the chosen structure can affect both the departing owner's family and the remaining owners. The discussion also examines how life insurance is commonly used to fund buy-sell agreements, the advantages and limitations of various funding methods, and why liquidity planning is essential to ensure the business can successfully navigate a triggering event without placing unnecessary financial strain on the company or its owners. Listeners will also learn about several advanced planning considerations, including the importance of business valuations, coordinating buy-sell agreements with estate and succession plans, avoiding common drafting mistakes, and recognizing situations where an existing agreement should be reviewed and updated. Daniel explains why buy-sell agreements should evolve alongside the business rather than remain static documents that are forgotten after they are signed. Whether you own an S corporation, partnership, LLC, or closely held C corporation, this episode provides practical guidance to help you better understand the tax consequences behind buy-sell agreement design and why thoughtful planning can preserve both business continuity and long-term shareholder value. Disclaimer: This podcast provides general information and discussions about tax, financial planning, and related subjects. The information provided by the podcast host is not intended to and does not constitute financial, legal, investment, or tax advice, and no listener should rely on any content in this podcast as such. Always consult a qualified professional regarding your specific needs and circumstances.