Are you thinking of selling your business? Has your broker discussed with you the potential tax implications associated with the transfer and how you can mitigate them? If not, perhaps you should talk with our advisers.
Selling a business could be both challenging and gut-wrenching at times, however, being prepared can help ease the process. The following are a few issues to consider when selling a business as they pertain to tax issues from a business transfer.
Stock vs. Asset – Depending on how your business is organized, the framework of the transfer you negotiate with your buyer could be critical. Should I sell the stock or the assets? Each formation, whether it is a C-Corp, S-Corp, LLC, or Partnership, possess different tax treatment upon the sale. The way your company is organized may affect the way you are taxed either at the corporate level or individual level and also may determine depreciation recapture. Knowing how to negotiate and structure around these issues could make a difference in up to 30% or higher in your total net proceeds.
Allocation of the Sales Price – The allocation of sales price will determine how the proceeds are taxed under an asset sale. There is an inverse relationship between how the buyer and seller want the allocation. How much of the final sales price should be allocated to consulting agreements, non-competes, fixed assets, intangible assets, and other assets are a factor of how experienced and knowledgeable of a negotiator you have on your team.
Installment Considerations – Are there any installment sale considerations? Should there be? Depending on your personal tax situation and any impending tax legislation on the horizon, an installment option may need to be considered as a tax mitigation strategy. An experienced and knowledgeable negotiation can help in this situation.
There are too many other tax issues to consider when selling a business, but our experienced team of advisers can help you, not only advising, but negotiating between the parties. Unfortunately, most business brokers never consider the tax implications, leaving it up to the seller’s accountant to handle after the sale; when it’s too late to turn back the clock. Contact Trinity today to for a Free Feasibility Analysis of your business to determine if you are ready to go-to-market.