Selling business at age 62 - need advice

[drstick]

Hi, my name is Jim,

Thinking of semi-retirement. Have received an offer to sell my insurance business for 350K with very little debt. Somewhat worried about Uncle Sam (I live in a State with no income tax) getting paid too much. It's my understanding that the tax would be capital gains. Will seek the advice of a CPA (attorney). Any ideas?

[TromboneAl]

I had a lawyer structure the contract so that the proceeds from my business were capital gains. Essentially, it said "I'm not selling the company, I'm selling the intellectual rights to the software." Something like that.

[Rambler]

I'm not an attorney, but I have done a quite a few acquisitions for megacorp, so I have seen it from the other side, and have had to try to create win-win situations for us and the seller. Tax always makes it tricky.

Been a while, but IIRC:

If you are selling your company (i.e., selling the shares of a legal entity), it would be cap gains, taxed at the lower rate. If you are not incorporated, operate as a sole proprietorship, you would be selling the business, not the company, and thus I believe the proceeds would be considered current income, and subject to income tax (not cap gains tax).

If you operate as a corporation, but sell the business and not the corp, the corporation will be subject to current income tax. If you as the shareholder then wind-up the company or liquidate the shares of that corporation, you then pay capital gains tax on the distribution of the proceeds. That means you are taxed twice: once at current income rates in the corporation, and 2) a second time personally at cap gains rates when you distribute the proceeds.

You need to have a good lawyer and accountant, working together, to help you structure the deal so that your good uncle doesn't get the better part of your years of hard work.

As I said, I am not an attorney, and this should not be construed as legal advice, but rather, as advice to get some really good legal advice.

R