Tax Implications of Selling Your Business

Tax Implications of Selling Your Business

Tax Implications of Selling Your Business

You are excited about sealing the deal. You can almost see money exchanging hands. You can imagine an immediate future where you have already sold your business and move on to something else. But you may have forgotten something—taxes. Specifically, taxes that are involved when selling your business. They don’t go away. Thus, you might as well know the basic information about them.

Your Business Entity Affects the Taxes

A big corporation is taxed differently from a small business that can either be identified as a sole proprietorship, partnership or limited liability company. The IRS rules are more restrictive about the former than the latter. It is best to seek a competent tax advisor prior to the sale. A firm like MKS&H can handle transactions like this smoothly, because we know the after-tax impact of such transactions. So, even prior to the sale, you will get a concise idea of how much you will be getting, including the figure after taxes.

Stocks or Assets? The Choice of Term Matters

The seller prefers selling the business as stocks. The buyer prefers buying them as assets. Why? Taxes favor them with that choice. What is favorable to the seller might be off-putting to the buyer, tax-wise. MKS&H will help you decide on a grueling negotiation. Left alone, you might be spending more on hiring different sorts of people to represent you. MKS&H is knowledgeable about corporate acquisitions, reorganization and the advantageous structures for holding assets that ultimately will save you from making a losing deal.

Your Business Operations Affect The Sale

How you allocate your assets (cash, property, etc.) and how you receive or distribute money will let the IRS determine how to tax you on the sale. Therefore, even before reaching out to potential buyers, you must have organized your business operations in thorough and explicable terms. When you contact MKS&H, there won’t be a problem at all. The following would already be completed: made an annual, quarterly, or monthly financial report that’s audited, reviewed, and well compiled; Assess crucial performance markers to help in solving operational obstacles; Scrutinize trends to identify their impact on the business; check and cross-check internal controls to protect cash; Manage allocation and analysis of company’s profit center; Investigate the budget, operating expenses, and cash flow; Help with collection and accounts receivables; As well as advise on 401k audits, succession planning, and inventory control.

Know What Items to Depreciate and How Much

Almost everything has a depreciation value especially those that lose efficiency over time (machines) or those that ‘wear and tear.’ When selling a depreciated asset, the IRS taxes you on the gain you have from the sale. Say, you want to close your tailoring shop and sell your sewing machines. The original cost for each is $100. You depreciated each one for $60 and sold it for $70. $10 dollars, which is your gain, will go to taxes. But assets are sometimes not as simple as those sewing machines. MKS&H can help you work your way through the proper tax accounting and make tax implications less complicated.

If you would like to learn more about how we can help your company, contact the consultants at MKS&H today!

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MKS&H is committed to providing personalized tax and accounting services while developing a deep understanding of you, your culture, and your business goals. Our full view of financial systems and the people behind them allow us create and evolve the best solution that will help you and your business thrive. The accounting experts and consulting professionals at MKS&H work together to help you achieve the financial results you want.

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