Sale of the paper brings concerns about a livable retirement income: Taxes!

December 2, 2014

How to sell your
newspaper with no
capital gains tax

By Dr. Harold Wong
Sound Money

You started your community newspaper 30-40 years ago with a dream. Against all odds, you competed with the large daily newspapers and carved out your local niche. However, none of your children or grandchildren want to work the long hours that you do—where you are the chief editor, sales manager, and even the weekend janitor.

You’ve received an offer to sell your newspaper, and you and your spouse (who has worked by your side for decades) want to spend more time with the grandchildren. You are entering into serious negotiations with the buyer, and then that little voice in your head says: “What are the tax and retirement planning implications of this sale?”


Major issues in this once-in-a-lifetime decision

Case Study with Option 1: John and Mary Smith have a firm offer to sell their community newspaper for $1.1 million. Their cost basis is $100,000, so they face a $1 million long-term capital gain. The long-term capital gains tax rate can be 20 percent if they have high income ($457,600 or more for joint filing married or $406,750 or more for single filers in 2014). However, let’s assume that their income is lower and their combined federal and state rate for long-term capital gains is 20 percent. They would then have $900,000 left ($1.1 million sales price less $200,000 of income tax).

Today, it’s difficult to earn much interest or dividend income. During the last six years, 2 percent has been the average interest rate on a 10-year Treasury note or the average dividend yield for the stock market. After risking everything they have in their newspaper, they don’t want to take the risk of the stock market. They also understand that bond values will decrease sharply if interest rates increase in the future. So, they are concerned about putting their money in bonds. Yet banks are not paying more than 0.5 percent on a CD, which would only be $4,500 of annual income. They decide to put all $900,000 in the bank until they have time to look at investment alternatives.

John and Mary are both 70, and their combined Social Security income is $45,000. When we add the $4,500 of interest, total income is now $49,500. They never dreamed that their income from selling the newspaper for $1.1 million would be so low.

Case Study with Option 2: Assume the facts are the same as Option 1, but John and Mary use the complex world of charitable planning to improve their situation. They transfer title of their newspaper to a certain kind of Charitable Remainder Trust (CRT). The CRT sells the newspaper for $1.1 million and owes zero capital gains tax. They decide to take a 5 percent payout from the trust, which starts at $55,000 per year and will pay out as long as one of them lives. If the CRT earns 7.82 percent, and pays them 5 percent, then it grows by 2.82 percent annually. They will receive 5 percent of whatever the CRT principal is. If the last spouse dies in 21.8 years, there will be a total of $1,625,323 of income to the surviving spouse. 

Based on a complex calculation, they will also receive, in the year of the newspaper sale, $451,209 of charitable tax deduction. If they can’t use it all in the year of the sale, they are allowed to carry forward the deduction for as many as the next five years. The best way to use this deduction is to do a Roth IRA conversion of the $471,209 that they have saved up in their 401k and/or IRAs. By converting the full $471,209, which normally would create $471,209 of ordinary taxable income in the year of conversion, they now have $471,209 in the holy grail of tax planning, the Roth IRA. This means that there are no Required Minimum Distributions when they turn age 70.5, and there is no income tax at all on this money, no matter how much they earn. If they don’t spend it all by death, there is no taxation on this bucket of money during the lives of their children and possibly even that of their grandchildren. Note: You only have $20,000 taxable income from the Roth IRA conversion as they had $471,209 in their tax-deferred retirement accounts and the CRT tax deduction is $451,209. 

What’s the downside to this type of planning? The CRT law says that that after the death of the last spouse, the remainder of the CRT funds, but no less than 10 percent of the initial $1.1 million, would go to charities that they designate. In this example, the charity would receive the $2 million in 21.8 years. But what about the children and/or grandchildren? They could use part of the CRT income, which starts at $55,000 in year one, to purchase a life insurance policy that will result in $1-2 million death benefit (after the last spouse dies) and this could go to their heirs without any income tax. The life insurance policy would be held inside an irrevocable life insurance trust, or Wealth Replacement Trust, so that the $1 million - $2 million death benefit is not counted as part of their taxable estate.

If you listen to Public Broadcasting TV or radio programs, note that the sponsor is either a charitable trust or a foundation. The strategy outlined above is how the super-wealthy, such as Warren Buffett can sell billions of assets and not pay any capital gains tax. The same law also can apply to the owner of a community newspaper who wants to finally sell. © Harold Wong 2014


Harold Wong may be reached at 480-706-0177,, or at For his archived research, go to


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