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Tax Considerations When Selling Your Business

Posted by Paul Visokey

Wed, Mar 14, 2012 @02:53 PM

If you are considering selling your business, tax rates, including the capital gains rate, need to be a consideration for you.  To minimize your tax payment you will want to plan for the best date to complete the transaction.  And before any further explanation, you will want to talk to your accountant or lawyer or both.  The potential issues are way more complex than this short post.

What portion of your sale becomes subject to capital gains tax or regular income tax depends on several variables:

  • The legal structure of your business

  • What exactly is being sold?

  • Future tax rates

The Legal Structure

If your business is a C Corporation, then the sale of the business may be retained within the corporation without impact on your personal 1040.  As long as the company does not pay a dividend back to the shareholders equal to the amount of the sale, there will be only the corporate tax rates to pay.  When money is distributed it becomes personally taxable.

If your business is an S corporation, an LLC or other limited liability entity, or is a proprietorship, the proceeds of your sale will be passed on to the individual owners at the rates then in force.

What are you selling?

Are you selling the company as a whole or are you selling the assets of the company.

If you are selling your C Corporation and transferring stock ownership, the rules of capital gains for individuals apply.  This is primarily how long you have owned the stock.  If you are selling the assets, as is commonly the case, the corporation will report the sale with some items as capital gains and other as normal income.

If you are selling the assets of a pass through entity, a proprietorship or partnership, the proceeds from the sale are taxable on the personal returns of the owners with some assets taxed at capital gains rate and others at personal rates.

Future tax Rates

Capital Gains Tax Considerations for Selling a Business in 2012 are more favorable.  Both income and capital gains tax rates are scheduled to increase in 2013.  While there have been a number of proclamations from the political world that rates should not go up, basing your plan on what is in today’s law would suggest that doing it before the end of 2012 is a good idea,

 

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Do you own your own business?

The US economy is driven by entrepreneurs - small and mid-market businesses, more than 20 million of them, many of them privately-owned. It is often difficult for owners to convert all of their hard work and ingenuity into an equity event. It is a complex and time-consuming process. Stony Hill Business Brokers has the experience and expertise to assist with selling a private business successfully.

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Is it time for a change?

All of the partners at Stony Hill Business Brokers have been entrepreneurs in private businesses and have had experience managing and selling their businesses. We understand the grind of running your own show and the uncertainty of getting the most value for the business.

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Are you looking for guidance?

We have particular experience with the small business market in eastern Pennsylvania, New Jersey and Delaware. We can provide advice on preparing a business for sale, even years in advance. We can help buyers find the right business for their circumstances. And we advise both sellers and buyers throughout the process to assure a quick, smooth transfer of ownership.
Do you own your own business?

The US economy is driven by entrepreneurs - small and mid-market businesses, more than 20 million of them, many of them privately owned. It is often difficult for owners to convert all their hard work and ingenuity into an equity event. It is a complex and time-consuming process. We understand the grind of running your own show and the uncertainty of getting the most value for the business. Stony Hill Advisors has the experience and expertise to assist with selling a private business successfully.
Are you looking for guidance?

We have experience in the small and mid-market business market with companies having revenues from $1M to $50M . We can provide advice on preparing a business for sale, even years in advance. We can help buyers find the right business for their circumstances. And we advise both sellers and buyers throughout the process to assure a quick, smooth transfer of ownership. In some instances, the parties to a transaction locate each other through informal industry or personal channels. These transactions include sales to unrelated third party acquirers, as well as management, family and partner buyouts. Stony Hill Advisors is frequently engaged to structure these transactions and navigate the many issues requiring attention from the initial stages to the consummation of the transaction. Often Stony Hill Advisors is engaged to provide Exit Value Planning to prepare a business for highest value when it is time to transition.

 
Are you interested in buying a business?

Stony Hill Advisors assists companies, entrepreneurs and corporate executives develop and execute customized acquisition strategies designed to result in successful acquisitions. We will find a unique business that is not necessarily “on the market”, resulting in a cost-effective acquisition.

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