UBCNews - Business - Tax Planning For M&A: What CPAs Wish Business Owners Knew Before Closing

Episode Date: January 29, 2026

Welcome back, everyone! Today, we're tackling a topic that keeps many business owners up at night—tax planning for mergers and acquisitions. And you know what? Most people don't realize how much money they're leaving on the table or how many landmines they're stepping on until it's way too late. Associates in Accounting, CPA City: Louisville Address: 9405 Mill Brook Road Website: https://www.associatesinaccountingcpa.com

Welcome back, everyone. Today we're tackling a topic that keeps many business owners up at night, tax planning for mergers and acquisitions. And you know what? Most people don't realize how much money they're leaving on the table or how many landmines they're stepping on until it's way too late. Yeah, that's so true. I've seen deals almost collapse because unexpected tax liabilities showed up right before closing. The thing is, effective tax planning isn't just about compliance. What What really matters is structuring the deal in a way that maximizes value and avoids triggering unnecessary taxes. Right. And that's where a lot of business owners get tripped up. They think they can handle the tax side later, but by then, their options are really limited. So let's start with the basics. What are some of those essential tax preparation strategies business owners should be thinking about before they even sign a letter of intent?

Great question. One of the biggest decisions is choosing the right. transaction structure. Are you doing an asset sale or a stock sale? Because that choice has huge implications. Sellers often prefer stock sales because they get capital gains treatment, which means lower tax rates. Buyers, on the other hand, usually favor asset sales because they can step up the basis of the assets, which gives them higher depreciation deductions down the road. Mm-hmm. Interesting. So you're really working through what each side wants and finding that balance. What about tax-free reorganizations? I've heard that term thrown around a lot in M&A circles.

Oh, definitely. Under IRC Section 368, you can structure certain mergers and acquisitions as tax-free reorganizations. Essentially, if you meet specific requirements like maintaining continuity of ownership interest and having a legitimate business purpose, you can defer tax liability. It's a strategic way to avoid immediate tax. hits, but you've got to play by the rules. For instance, you often need at least 40 to 50% stock consideration to qualify. Got it. And I suppose that's where net operating losses come into play, too, right? That point about leveraging tax attributes sets up our next piece, using NOLs strategically.

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Picking up on leveraging tax attributes, how exactly. Exactly do you handle net operating losses when there's been a change in control? That's where Section 382 comes into play, and honestly, it's a trap a lot of buyers fall into. If there's a significant ownership change, basically 50% or more by certain shareholders over three years, the IRS limits how much of the target companies' NOLs you can use annually. Buyers sometimes assume those losses have no value unless they conduct a Section 382 study up front. That's a huge missed opportunity. Right, exactly.

So pre-transaction planning is absolutely critical here? Exactly. You want to document the value of those tax attributes early. R&D tax credits and foreign tax credits are also key strategies. These can offset current or future liabilities, but you need to know what you're working with before the deal closes. Otherwise, you're basically flying blind. Actually, I remember one client who waited until two weeks before clients,

closing to ask about their NOLs. Turned out they had restrictions we could have addressed months earlier. We managed to salvage some value, but it was a scramble. Wow, that must have been stressful. And speaking of stress, what about cross-border deals? I imagine the tax implications get even messier when you're dealing with multiple countries. Oh, for sure. International M&A transactions require you to work through transfer pricing rules withholding tax obligations and tax treaties to avoid double taxation. I had a client once who was acquiring a company overseas, and we had to dig deep into the foreign tax credit rules

to make sure they weren't paying taxes twice on the same income. The multi-jurisdictional aspects can be tricky. Kind of like trying to file taxes in three languages at once, you know? Ha! Yeah, that sounds like a nightmare. So to everyone listening, if you're considering an M&A deal, you really can't afford to wait until the last minute to think about taxes. Have you ever wondered how much value you could unlock just by planning ahead?

That's a great way to put it. I mean, the financial benefits of early tax planning can be massive. You can defer or reduce liabilities, maximize deductions, and ensure compliance at every level. Plus, you avoid those common pitfalls like insufficient due diligence or errors in transaction structure that can derail. deal. Early planning saves money, or to say it another way, starting your tax strategy sooner rather than later keeps more cash in your pocket. I see. That makes sense. You mentioned due diligence. What are some of those hidden tax liabilities business owners tend to overlook? Good question. Things like unpaid taxes, worker misclassification, and undocumented exemptions

can escalate into major financial burdens during a deal. Poor accounting practices and disorganized records are red flags too. Deals have been postponed or even collapsed because of messy financials. That's why thorough tax reviews are paramount, no matter the size of the business. Yeah, and I suppose that's where having a professional team comes in. CPAs can provide financial due diligence, help with purchase price allocation, and create forecasts to project how the merged entity will perform. Definitely worth the investment.

Absolutely. And once the deal closes, the work doesn't say. stop. Post-merger tax integration and ongoing compliance are just as important. You've got to align financial systems, manage GE ORP and IRS reporting, and make sure everything's in order for future audits. So how do you think business owners can stay ahead of the curve when tax laws are constantly changing? Well, that's where specialized external expertise really shines. Many companies have limited internal resources, so outsourcing to fractional CFOs or tax consultants can be cost-effective and give you access to diverse expertise. They stay on top of regulatory changes and help you adapt your strategies accordingly.

Makes sense. Before we wrap up, any final advice for business owners who are just starting to think about an M&A deal? Start early. Consider the tax implications from day one, and don't be afraid to bring in experts. Strategic tax planning can mean the difference between a deal that maximizes value and one that leaves money on the table, or worse, falls apart entirely. Great advice. Thanks so much for joining us today and breaking down these complex topics. And to our listeners, remember, for M&A transactions, proactive tax planning is your best asset. Until next time, stay informed and keep those deals moving forward.