In today’s fast-paced economic landscape, where inflation plays a significant role, understanding how to keep your money from losing its purchasing power is like playing a strategic game. It’s often thought that tucking your money away in a risk-free haven, such as a savings account or even Certificates of Deposit (CDs), is like giving it a cozy blanket of security. However, this approach can be akin to letting your money take a long nap, waking up to find that it’s lost some of its muscle – in other words, its purchasing power – thanks to inflation.

Let’s talk about inflation

It’s like the Pac-Man of the economic world, gobbling up the value of your money. When inflation is high, prices for everything from apples to zippers go up, and the money in your wallet starts feeling a bit lighter. For instance, CDs might currently attract attention with rates around 5%, but with an annual inflation rate hovering at 3.7%, they don’t quite combat inflation’s eroding effects. This scenario calls for a strategic balance between safety and growth potential.

Imagine inflation is galloping ahead at 6% or 7%; your 5% CD is actually losing the race, and thus, the value of your money is quietly slipping away.

Now, enter the world of investing. It’s like putting your money on a treadmill instead of letting it snooze on the couch. Investing in stocks, bonds, real estate, or mutual funds could potentially offer returns that not only keep pace with inflation but might even sprint ahead. Yes, investing comes with its ups and downs – it’s not always a smooth ride, and the value of your investments can fluctuate. But, it’s a proactive way to give your money a fighting chance against inflation.

The trick to navigating this investing game is diversification – spreading your investments to minimize the impact if one doesn’t perform as expected. Think of it as not putting all your eggs in one basket. And then there’s understanding your risk tolerance. Are you the type to ride the roller coaster with your hands up and eyes open, or do you prefer the gentle turns of the merry-go-round? Your investment choices should align with how much uncertainty you can comfortably handle.

Financial advisors often suggest a balanced mix of investments that align with your goals, timeframe, and how much risk you’re willing to take. This approach can help your money not just keep up with inflation but potentially outpace it.

Investing in assets like stocks, bonds, or mutual funds could offer higher returns, potentially outpacing inflation. However, these come with higher risks and volatility. When considering investment vehicles, it’s crucial to look beyond the potential returns. Factors like risk tolerance, liquidity needs, and investment timelines play pivotal roles in decision-making.

This is where commercial real estate and buying a business emerge as compelling options in this landscape.

Commercial Real Estate

This asset class often acts as a hedge against inflation. Rents typically increase with inflation, which can lead to higher income over time. Moreover, commercial properties often appreciate in value. The tangible nature of real estate, combined with its potential for passive income and tax benefits, makes it an attractive long-term investment.

Buying a Business

This approach can offer direct control over your investment and the potential for high returns. Successful businesses can generate significant income and grow in value. This option also allows for creativity and personal involvement in the business, which can be rewarding beyond just the financial return.

Both these strategies offer the potential to not only keep pace with inflation but to significantly outpace it. They also add diversification to an investment portfolio, which can reduce overall risk. However, it’s important to note that both require substantial upfront capital, due diligence, and an understanding of the market dynamics. They are suited for investors who are prepared for a hands-on approach and have a longer investment horizon.

In summary, while traditional investment vehicles like CDs are straightforward and low-risk, branching out into commercial real estate and business ownership provides an avenue for potentially higher returns, direct control, and effective inflation hedging. Given the right approach and resources, these strategies can be integral parts of a robust investment portfolio.

Ready to explore the dynamic world of commercial real estate or business ownership? Contact us today to start investing smarter.

The post Beating Inflation, Beyond CDs with Commercial Real Estate and Buying a Business appeared first on AZUL Advisors | Brokers | Consultants.

10 Tax Strategies to Defer, Reduce, or Avoid Capital Gains from a Business Sale

Navigating the world of taxes can be daunting. However, if you’re equipped with the right strategies, it’s possible to mitigate the tax impact from the sale of an asset or business. Here’s a comprehensive look at several tax-saving techniques that might be available to you:

1. Section 1202 – Qualified Small Business Stock (QSBS) Exclusion

Section 1202 offers substantial tax advantages for those investing in small businesses. If you’ve held stock in a qualifying C Corporation for more than five years, you might be able to exclude a significant portion, or even all, of your capital gains upon sale. This can be a game-changer for long-term investors in small businesses.

2. Section 1045 – Rollover of Small Business Stock

For those reinvesting proceeds from one QSBS sale into another within 60 days, Section 1045 allows for a deferral of the capital gain. This rollover provision is a boon for serial entrepreneurs who continuously invest in new ventures.

3. Opportunity Zones

Introduced by the Tax Cuts and Jobs Act of 2017, Opportunity Zones offer a path to defer and potentially reduce capital gains taxes. By channeling gains into Opportunity Zone funds, which then invest in designated distressed communities, you can couple tax savings with societal impact.

4. Installment Sales

When you finance a buyer’s purchase, you can recognize the gains over the loan’s term, spreading out your tax liability. This method can optimize your tax obligations across years, especially if your taxable income fluctuates.

5. Charitable Remainder Trusts (CRT)

A CRT is a powerful tool for philanthropically-minded individuals. By transferring appreciated assets to this trust, you defer capital gains tax upon sale. In return, you receive a steady income from the trust, with the remaining assets eventually benefiting a charity.

6. Section 351 – Transfer to a Corporation

Transferring property to a corporation in exchange for its stock can defer recognizing gains or losses, provided you control at least 80% of the corporation after the transfer.

7. Self-Directed IRAs

Broaden your investment horizons with self-directed IRAs. Ideal for alternative assets like real estate, this vehicle lets returns grow tax-deferred, enhancing your wealth-building efforts.

8. 1033 Exchanges

For those facing involuntary property loss, such as theft or natural disasters, 1033 exchanges offer a respite. By replacing the lost property, you can defer the gain, ensuring external factors don’t derail your financial plans.

9. Structuring the Sale

Crafting a well-thought-out sale structure can yield tax efficiencies. By smartly allocating the purchase price across various assets, both buyers and sellers can tap into preferential tax treatments.

10. ESOP (Employee Stock Ownership Plan)

Consider ESOPs as an exit strategy. Business owners can sell their shares to this qualified retirement plan, potentially deferring or eliminating capital gains tax and fostering employee ownership.

Closing Thoughts

Navigating the labyrinth of tax strategies demands careful consideration of your unique situation. A tailored approach, under the guidance of a tax professional or financial advisor, can optimize your tax position and secure your financial future.

*Disclaimer: This blog post offers general information and should not be construed as financial or tax advice. Always engage with a qualified professional for personalized guidance.*

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