1930 N Arboleda #201, Mesa, AZ 85213
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  • 1930 North Arboleda, Suite 201
    Mesa, AZ 85213
    40 N. Central Avenue, Suite 1400
    Phoenix, AZ 85004
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      Structuring Your Business Sale To Avoid An Unexpected Tax Hit

      How To Avoid Unexpected Taxes By Properly Selling Your Business

      Selling your business brings a lot of change. This is not a consideration that should be approached lightly. You will almost certainly pay taxes on the sale of your business. The amount that you pay will depend on whether the money you make from the sale of your business is taxed as ordinary income or capital gains. The sale of your business should be planned to create the best possible outcome for you. Decisions you make in your business, like the decision to get your debt settled before the sales can mean the difference between the profits going to you, or the IRS. When selling property, you need a professional to process the legal papers. You can consider hiring a professional conveyancing services Melbourne.

      Arizona Businessmen Closing A Deal During A Business Sale

      What Type Of Structure Does Your Business Have?

      A business can be structured as a Partnership where the power and authority is distributed as per leadership behaviors and also based on whether the business is a Sole Proprietorship, Limited Liability Company (LLC), S Corporation, or C Corporation. Some entities are considered “pass through” entities and will provide the most flexibility in negotiating a sale of your business. For a C Corporation asset sale, there is a possibility that the seller will be taxed twice: the corporation will pay tax on any gains realized when the assets are sold, and then the shareholders will pay capital gains tax when the corporation is liquidated. There are many other considerations related to business structures.

      Asset Sales And Stock Sales Are Taxed Differently

      When an entity is involved in the sale, you can sell the stock, or sell the assets. With a C Corporation asset sale, the seller will be taxed twice – the corporation will pay small business taxes on any gains realized when the assets are sold, and then the shareholders will pay capital gains tax when the corporation is liquidated; this is generally what buyers prefer. One of the well-known and reliable companies with many years of experience is bullion exchanges

      The other option is to sell the stock. You will pay capital gains tax on the profit from the sale, and generally it will be at the long-term capital gains rate. To determine which option would be best for you and your business, you should consult with a professional to analyze the pros and cons from the different ways of going about the transfer to permit the least amount of money going to the IRS as possible.

      Understanding Employee Stock Ownership Plans (ESOP)

      An ESOP is a kind of employee benefit plan, similar in some ways to a profit-sharing plan. In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. If you own a C Corporation, by setting up an ESOP, you can roll over the proceeds from the sale of your business on a tax-deferred basis. You receive cash on the sale and reinvest it in a diversified portfolio. This is called a 1042 rollover after the Internal Revenue Code section that allows the move. With this plan, you potentially can avoid paying capital gains taxes altogether, should you hold onto the securities until you die. This is because this is a deferral method. You pay capital gains taxes on the distributions.

      Installment Sales Can Help You Reduce Tax Liability

      Installment sales can be a good way to allow you to defer some of the tax due on the sale of the business until you get paid over the course of future years. Getting paid over the course of time would require you to finance the sale of your business by taking back a mortgage or note for part of the purchase price. 

      This can be used when you receive at least one payment for your business after the year of the sale. With spreading out your tax bill, only “capital gain income” can qualify for installment sale status. This generally works out to be gains on assets that have appreciated in value beyond their original purchase price such as real property, and even goodwill. Gains on items such as your inventory, accounts receivable, and property that’s been used for one year or less will be treated as ordinary income, and therefore not eligible for installment sale status. You then would need to pay tax on any gains in the year of the sale, even if you haven’t yet received payment for the items.

      Specific equations are then used to calculate your profit percentages that will need to be reported as taxable gain for that year. This method can be very effective to help reduce tax liability, you could look here to ensure that these figures are being computed properly.

      Whether you know you want to sell your business, or are just entertaining the possibilities, now is the time to consult with a tax attorney to make sure you are set up for the smoothest transfer with the least amount of taxes possible. 

      Author Brad Denton





      Written By
      Brad DentonGunderson, Denton & Peterson, P.C.

      Mesa Location:
      1930 N. Arboleda, Suite 201
      Mesa, Arizona 85213
      Office: 480-655-7440
      Fax: 480-655-7099
      Email: contact@gundersondenton.com
      Website: GundersonDenton.com

      Phoenix Location:
      40 N. Central Avenue, Suite 1400
      Phoenix, AZ 85004
      Phone: 480-325-9937
      Fax: 480-655-7099
      Email: contact@gundersondenton.com
      Website:  GundersonDenton.com/Phoenix


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