Whether you're buying or selling, keep these points in mind
A major consideration in selling a business is the tax implications for both the buyer and the seller. Like many terms of a sales agreement, what might be good for the seller may not be for the buyer, and vice versa.
Creating a strategy to minimize the total taxes on the transaction is an important part of this process. The parties must take into consideration what the seller’s taxes are now and what the buyer will have to pay. Buyers and sellers should always remember there may be state and local tax considerations. It is always best to contact an accountant before entering into a sales agreement.
A seller is going to want to structure the sale in a way that minimizes the taxes paid from the gain of the sale. The timing of taxable gain is a concern during the sale process. For example, if the seller finances part of the sale or accepts purchaser stock, the seller may want to structure the transaction so that any tax paid on the gain of the sale is delayed until the installment payments are received. This will save the seller money in taxes at the end of the sale.
A buyer will be incentivized to structure the sale to help lower the after-tax cost of purchasing the business. A primary concern for the buyer will be the allocation of the acquisition cost. Buyers may want the acquisition cost to be allocatable to assets that can be expensed quickly. Some businesses may have a tax credit or a net operating loss that the purchaser might want for future use, although the utilization of these may be limited. Last, there may be assets of the business that are nontransferable, and the only way to structure the transaction is through a stock purchase.
Tax issues almost always arise when selling a business. It is suggested you always work with a certified public accountant to better understand these implications and to minimize the tax issues.