Sales or Purchase of Business
Tax regulations regarding the sale or purchase of a business can be quite complex. If you are selling your business, there are many ways of structuring the transaction to minimize your tax liability. Whether selling or buying, you should have detailed knowledge of the various tax regulations and the advantages and disadvantages for each method of sale or purchase in order to reduce tax obligations.
Selling Your Business
If you are looking to transition out of your business, there are several ways you can structure your sale. There are advantages and disadvantages to each type of sale, and the one you choose will largely depend upon your particular business, as well as your specific goals for the sale. The structures you might choose include:
- Upfront Sale – This type of sale requires that all taxes due be paid in the year of the sale rather than over time. You will not have to worry about any tax payments or uncertainties in the future. The biggest drawback to this type of sale is finding a buyer who has the means and is willing to arrange for payment in full at the time of the transaction.
- Installment Sale – Many business sales are structured as an installment sale where the seller receives payment of the purchase price over time. Many times these sales are to family members to pass the business down to the next generation. Because the payment is received in installments over time, for tax purposes you only have to report the money received in the year that it is received.
- Asset Sale – This type of sale often allows an opportunity to reduce tax based on asset allocations. There are very specific tax laws regarding each type of asset and advanced planning is required.
- Merger or Tax-Free Reorganization — These options often allow you to dispose of your business with minimal taxation. However, these options are extremely complicated and highly regulated. It is vital that you consult with a tax professional before deciding on such a plan
Looking to Buy?
As with the sale of a company, there are multiple purchase options available when buying an existing business. Depending on the type of business and your particular financial situation, there are unique advantages and disadvantages when it comes to tax liability. In addition, we can assist in evaluating the financial stability of the companying you are considering buying. Prior to purchasing, we recommend that you contact our firm to review potential issues and tax liabilities so your business starts on a solid foundation.
Call Sarasota Accountants Koontz & Parkin, CPAs about the Sale or Purchase of Your Business
Jo Ann M. Koontz and Marina Parkin offer a powerful combination of in-depth knowledge of tax regulations, a firm grasp of the business world, and years of experience representing clients. To schedule a consultation, call the Sarasota office of Koontz & Parkin, CPAs at 941.328.3993.