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Danger: Taxes Ahead! Plan Your Detour Now!

Is your company planning to merge with another, as in the case of Medtronic and Covidien?  Recent mergers have shined a light onto the scope of the tax consequences faced by shareholders when these corporate actions occur.  In the case of the Medtronic /Covidien merger, an entirely new entity is being created to purchase all of the shares of both companies.  This means that shareholders on both sides of the merger will be facing an unplanned tax liability because of the transaction.

It does not matter if the stock is held in an ESPP or if you hold them in a brokerage account, once the transaction closes, you will pay taxes on all of your capital gains.  For those who have shares in an ESPP the 15% discount is treated as ordinary income and taxed accordingly, which is usually a much higher rate than capital gains.  Additionally, while stock held in your retirement plans will not incur an immediate tax for you, the transaction may eliminate the possibility of implementing certain strategies that could otherwise have yielded tremendous tax savings.

Thankfully, Medtronic has encouraged employees and retirees to seek the advice of a financial or tax advisor, but do not wait until the last minute.  Seeking advice far in advance of the date the merger will be  completed will provide you the best options to reduce the taxes that will be illuminated on the tax return filed the year after the deal closes.

The tax code is very complicated, so beneficial financial advice cannot be based on a simple tax estimate, or a rule of thumb, as is common during a free phone based tax interview.   Every aspect of your unique personal finances could provide a detour to legally avoid unnecessary tax liabilities.  Be sure to seek the advice of a financial firm that understands how to find the best options based on your unique household financial situation.

There is an underlying sense of urgency, whether you feel it or not.  The Medtronic and Covidien transaction is projected to close in the 4th quarter of 2014, or early 2015, and the 4th quarter began last Wednesday, October 1, 2014. Once it is complete, any opportunity you had to decrease your tax liability, or fund your long-term goals at a reduced cost, is lost and you will simply pay your taxes.  Shareholders may be able to save even more in taxes by splitting the sale between two tax years.  In some cases, these strategies can be complicated and are best executed under the guidance of someone who is knowledgeable on the subject.

There are many options that can be focused on your unique goals and objectives that could reduce the taxes looming. You stand at an important fork in the road.  Doing nothing is always an option, but it can be expensive. The advisors of FFP Wealth Management have helped thousands of families reduce the taxes caused by many life events including corporate mergers.

FFP Wealth Management has a competitive advantage as they have created a proprietary tool called the TaxSuperSheet®, which can produce an accurate comparative tax and cash flow analysis showing the benefit of various strategies available to each taxpayer.

When considering a financial advisor, your needs must come first.  Do not be afraid to ask a financial advisor you are interviewing how they are paid.  This single question may reveal conflicts of interest that might skew their advice away from your best interests in favor of their own.  An advisor who is a member of the National Association of Personal Financial Advisors (NAPFA) does not sell financial products, does not earn commissions and does not receive referral fees.

Contact FFP Wealth Management to set up a free initial consultation to determine if you might benefit from a tax-savings strategy before the decision to do nothing is made for you.


“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.  Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible.  Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

Judge Learned Hand 1935