Author Box
Articles Categories
All Categories
Articles Resources

Impact of Tax When Selling a Business

April 25, 2012 | Comments: 0 | Views: 165

What is the impact of tax when selling a business? Most small business owners spend a lot of time wrestling with the decision about when they will put their business on the market and try to sell it. There is no question that selling a business is an important decision for its owner as it touches many aspects of their life. These aspects of their life include their financial security, their perception of how successful the business has been or alternatively, has the owner taken the business as far as they can take it. However, probably the most important aspect of all is what the owner wishes to do with their future and whether or not they see themselves owning and operating the business.

All of the above and many more reasons take time to consider arriving at the right answers. If the owner no longer sees themselves owning and operating the business and wish to sell, there is an important need to consider the tax implications if they sell the business. The tax implications happen at two levels. The first level is the tax consequences preparing the business for sale. The second level is the impact on taxes when the business moves from the current owner to the buyer. If you are considering selling your business, here are some tax consequences to consider as you contemplate whether or not you will sell the business.

  1. Understand the differences between a Stock sale and an Asset sale. Buyers generally prefer an Asset sale as it eliminates legal liabilities and allows the buyer to start depreciating assets all over again.
  2. Consider maximizing the amount of charitable contributions to closely held business interests
  3. Consider receiving some of the purchase price of the business in installments such as through payment of a salary, a management agreement or a consulting agreement, This allows the seller of the business to receive income when they stop working in the business and therefore no income tax for wages or salaries.
  4. The tax benefits of an installment sale. An installment sale allows the seller to be paid some of the proceeds from the sale of the business to later years thereby spreading out or deferring to future years the tax liability the income would generate.
  5. An additional strategy with the last suggestion is to increase the rate of interest the seller is paid on the installment sale once again deferring to future years the tax liability.
  6. Understand that the value the business sells for revolves around the discretionary earnings of the business so all cash that flows through the business is reported, non business discretionary items are no longer run through the business and any unusual one off occurrences are clearly documented so a buyer can see they are not a normal part of the way the business operates. For example, the business may have a settlement with an employee that involves a one-time payment or the owner may be going through a divorce and paying the attorney fees through the business. These one-off events reduce the profitability of the business but the appraiser should not consider these when they appraise the business.

The tax treatment for different types of legal entities is not the same. A sole proprietor, LLC or partnership will have much different tax outcomes to a corporation. The tax treatment may be entirely different for an S Corporation than a C Corporation. If the owner of the business wishes to maximize their tax position it requires an appropriate amount of planning and guidance.

Because the tax impact from selling or buying a business is complex and can create tension in the transaction, a company that specializes in business exit tax strategies to help both buyers and sellers is Walker Advisory Services in Texas. Walker Advisory Services can work directly with you to offer their tax planning suggestions or in conjunction with your CPA or tax agent. Their specialization of tax planning strategies exposes them to this difficult area of tax law and uniquely positions them to support the nuances that relate to the selling of a business or buying of a business.

Andrew is a 5-time business owner that helps entrepreneurs exit or enter business ownership. His services include helping owners sell and/or buyers purchase an existing business or consult on purchasing a franchise. He also provides certified machinery and equipment appraisals and business valuations.

Andrew currently holds the Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA), the highest credential awarded by the IBBA and the Certified Business Broker (CBB) designation from the California Association of Business Brokers. He also holds a Brokers License with the California Department of Real Estate, is a member of the Sacramento Metro Chamber of Commerce and the Chair of the Sacramento Chapter of the California Association of Business Brokers.

Andrew is also the published author of four books on buying or selling a business available for instant download at If you have questions, email Andrew at or visit his website at sacramento business broker

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Installment Sale


Asset Sale


Non Business


Business Sells


Business Discretionary

In India, employment opportunities are set to grow by a good margin in the coming year, a phase which was started in the turn of the second decade of the 21st century. organisation, candidates with

By: Sarkariexam l Business > Careers Employment l April 01, 2013 lViews: 11705

Sometimes it is amazing to see that certain jobs can precipitate huge turnouts in the recruitment drives. It is as if thousands of people were waiting for the vacancy advertisements and the moment

By: Sarkariexam l Business > Careers Employment l December 30, 2012 lViews: 690

In recent times, jobs in healthcare segments have grown tremendously. It is anticipated that this growth curve will continue for the times to come. Various factors are responsible for this

By: Sarkariexam l Business > Career Advice l December 27, 2012 lViews: 446

Are you in a dilemma whether to choose web based CRM or not? If yes, don’t worry. You aren’t the sole person having this doubt.There are numerous firms trying to make out whether investing in a

By: Reneta Vasileva l Business > Customer Service l December 23, 2012 lViews: 409

If you think about it you will realize the fact that each business has its own set of risks that are involved in it.The trade secrets that you have and the information related to the business is what

By: brumbrum1 l Business > Risk Management l December 23, 2012 lViews: 263

As the time is changing, concierge management services are now growing despite the slowing economies of the world. The main reason of it is the need that is highly specific to the people who like to

By: willsmith10 l Business > Management l December 23, 2012 lViews: 333

The "acid test" comes from the world of metallurgy, and refers to the purification of gold. This metal rarely occurs in the form of pure nuggets. Instead it has to be extracted from ore, a tedious

By: Bruce Hoagl Business > Entrepreneurialisml June 11, 2012 lViews: 217

Achilles was a character in Greek mythology made famous by his heel, which his mother had failed to protect when she dipped him in the River Styx. Paris discovered this secret weakness and exploited

By: Bruce Hoagl Business > Entrepreneurialisml June 11, 2012 lViews: 168

Entrepreneurs a just like everyone else in this respect: They prefer smooth-sailing to their destination. But we all know that there are times when we must navigate unexpected changes in the wind and

By: Bruce Hoagl Business > Entrepreneurialisml June 11, 2012 lViews: 169

When you start a lawn service business, you need to choose the right equipment and tools. You need to mow the most lawns in the least amount of time.

By: John C Millsl Business > Entrepreneurialisml June 08, 2012 lViews: 186

February the second is Groundhog Day, the American holiday which inspired the 1993 movie of the same name, starring Bill Murray and Andie MacDowell. Bill's character, a weatherman, finds himself

By: Laura Ashley-Timmsl Business > Entrepreneurialisml June 08, 2012 lViews: 233

The frozen yogurt business is thriving and this tasty frozen dessert is becoming more popular by the day. If you are like many forward-thinking entrepreneurs, you are thinking about taking advantage

By: M McHalel Business > Entrepreneurialisml June 07, 2012 lViews: 307

Do you use Key Performance Metrics to run your business? One of the truisms I've come to believe wholeheartedly is that no business owner is good at every aspect of owning and operating a business.

By: Andrew Rogersonl Business > Entrepreneurialisml April 25, 2012 lViews: 175

Discuss this Article

comments powered by Disqus