Taxes Re: Sale of Business

[flpanhandle]

In another post http://early-retirement.org/forums/index.php?topic=13815.0 I inquired if anyone has ever sold a business.

My new question is, what are the tax consequences of doing so. From what I can read capital gains will apply to some of the sale. If the business sells for $135000 after broker commisions, how are taxes figured? Assetts of aprrox. $40000 that are totally depreciated, inventory of approx. $15000 that is paid for, and the remainder I guess being goodwill of $80000. This is an ongoing retail business.

Any input would be appreciated. I know I'll need a tax advisor, but in the mean time I am wondering. The IRS site was totally confusing.

Thanks.

 

[Martha]

This IRS publication should help you sort through some of your issues: http://www.irs.gov/publications/p544/index.html

Chapter 3 specifically talks about sale of business assets.

You likely will want to talk to your tax advisor before signing a purchase agreement to work out the allocation for the purchase price.

 

[CaseInPoint]

For the most part, if you sell the corporation in its entirety (i.e., the stock), you are subject to the capital gains tax rate (better for the seller, because it's at a lower rate). But if it's an asset sale, you will need to pay tax on what is considered ordinary income (seller pays higher taxes. Better for the buyer, because they can then depreciate the assets).

In any event, you should ask your accountant to project your tax liability, and if at all possible, try to do a stock sale.

 

[REWahoo]

CaseInPoint, I'm not sure your advice will be of any benefit to the original poster. If you note the date of the last post, this thread has been dead for more than a year...

 

[CaseInPoint]

CaseInPoint, I'm not sure your advice will be of any benefit to the original poster. If you note the date of the last post, this thread has been dead for more than a year...

That's true.

But the question is one that's often asked by people considering the sale of their businesses. Hopefully, my answer will interest someone visiting this thread.