Tax Concerns When Selling A Business

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on January 12, 2014 in Money & Finance

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Ah, wouldn’t it be nice . . . to cash out of your business and have the time, freedom and buckaroos to lounge in Tahiti, build that extra extension on the house or give to the charity of your choice.

But there’s more that has to go on behind the scenes–before you get to that big splash with lots of zeros to the left of the decimal point. Particularly in the realm of tax planning. (Because you can be sure that when there’s a windfall, Uncle Sam will be right there next to you with his hand out!)

Here are some steps to think about (and AllBusiness.com neatly outlines):

  1. What are you selling? There are two ways to sell your business: Sell the entire thing, entity and all, or sell the assets (and leave you holding the shell of the old entity). No surprise, sellers usually want to unload the whole kit and caboodle. Buyers usually want to avoid the liabilities that the business may have accumulated, so generally prefer to cherry-pick the assets.
  2. What can you sell? If you’re a sole proprietor, you have no entity to sell. If you’re a service-based business where the value of the company is based exclusively on the services you provide, there’s nothing for prospective purchasers to “buy” (unless they plan to hire you to work in-house, in which case it’s not strictly a business sale). Have you created any intellectual property that has an independent value?
  3. What’s the payout? Depending on the circumstances, you could have a number of options. Do you want all of it in cash, paid immediately? A payout over time? A mix of buyout for the assets and an employment (or consulting) contract to help with business transition for a few years? Part payment in stock of the acquiring company? Each one should be evaluated to see which provides the greatest tax advantage to you.

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