The sale of a small to medium-sized business is a complex venture. Even when you’re aware of the tax consequences, it can be difficult understanding all the factors at play.
If you’re thinking about selling your business, the first step is to consult a competent tax professional. Tax consequences for selling a small business can be quite complicated. Seek out the help of an experienced CPA who specializes in business, or a tax attorney if it seems you’re in over your head with the complexity of the issue.
You will need to make sure your financials are in order, obtain an accurate business valuation to determine how much your business is worth (and what the listing price might be), and develop a tax strategy that maximizes profits from the sale.
Accurate Financial Statements
In order to successfully sell your business, you will need to be prepared with detailed financial information about your company. Potential buyers will need to see recent and previous years’ balance sheets, profit and loss statements, tax returns, equipment lists, product inventories, property appraisals/lease agreements – everything a buyer may want in order for them to make the informed decision about buying your company.
Values of small businesses can be difficult to determine, and third-party evaluations can help alleviate any misunderstandings and work toward a fair valuation.
Tax Consequences of Selling
Tax laws for small business owners can be especially complex. Speak with your tax professional about the best way to sell your company without paying more than the necessary amount of taxes. Tax consequences vary, depending on many factors like how long you have owned the company and whether or not you started out as an incorporated entity.
A Tax Strategy for Selling Your Business
Besides considering tax implications when selling a small business, a sound approach is important too. Your financial advisor will likely suggest forming an LLC or corporation in order to receive income from the sale of your business through distributions instead of receiving a lump sum of money that could result in higher taxes for you personally —and this may be true even if you received money from employees via payroll checks or by making them stockholders. This strategy can also come into play if you own a partnership or have personally guaranteed loans for your business.
Once you’ve determined how you will receive the money from the sale, it is best to seek out the help of a CPA who specializes in small businesses so that you can make sure all tax requirements are met and income taxes are paid as required by law. Tax preparation of sale transactions involves complex computations which most people not familiar with tax laws cannot handle on their own. If this happens to be your situation, then don’t hesitate to get professional help!
Tax forms may need to be filed on behalf of both buyer and seller – consider hiring an expert accountant from whom they can obtain advice about such issues. Tax preparation should not be taken lightly, and you must have a solid knowledge of tax laws before you can properly prepare for the sale of your small business.
Although taxes are certainly an important aspect to consider, putting price first is critical as well. Tax consequences will vary depending on many factors like how long you’ve owned the company and whether or not it started out as an incorporated entity. Know what assets might be subject to capital gains taxes, depreciation recapture, or other issues when considering selling your company.
Tax planning can help ensure that you get the most from your business’s sales and minimize any unnecessary costs. Tax preparation should involve complex computations which most people not familiar with tax laws cannot handle on their own—you’ll need expert advice from a CPA who specializes in small businesses!
Help is Just a Phone Call Away
Many owners of small businesses have a hard time walking away from their lives. They enjoy the action and don’t plan to retire soon. A possible solution is negotiating other arrangements for as long as your business is profitable, such as consulting agreements with the potential buyer. This can give you ongoing income and be beneficial on taxes if qualified (such as claiming qualified business income deduction when eligible).
A sale of a business is a highly complex matter from a legal and tax perspective. Seek expert advice before proceeding.
If you’re thinking of selling your small business in the near future, please contact our office to schedule a consultation with one of our CPAs.