Tax when selling a business
How much tax will I have to pay when I sell my business or medical practice?
Or the obvious question to ask when you plan to sell your business is “How much of the final purchase will I get to keep?” That seems a very fair and reasonable question.
Unfortunately, it is not a quick and simple answer. The buyer of your business will make a final decision to buy the business based on the maximum operational cash flow they can get from the deal. The seller has a different agenda which is to maximize the amount of the purchase they get to keep after paying all taxes.
To help the seller understand the amount of tax they may have to pay and therefore understand how much they get to keep after they pay their taxes, there is value in answering a series of questions which allows the answers to reveal themselves.
Here is a series of questions to use so the seller of a business can understand what will impact the final amount they get to keep after they pay all taxes. The questions are not exhaustive but will allow a business owner to have a discussion with their professional tax advisor.
- How long, in months or years, do you plan to sell the business?
- What value or price do you expect to get from the buyer of the business?
- How much is the annual accumulated depreciation of the business?
- What percentage of the business do you own?
- If the business has sold, when did the transaction close?
- Is the purchase price all cash, or if the seller is carrying a note, how much is it?
- How much is the buyer down payment and is this being paid by cash?
- What is the current market value of the different assets of the business?
- What is the type of legal entity of the business? (C-Corp, S-Corp, LLC, Partnership, etc)
- If the business was incorporated, what was the date?
- If the business is incorporated, what type of corporation did it start initially? (C-Corp, S-Corp, LLC, Partnership, etc)
- If the business changed its entity, to what type did it change? (C-Corp to S-Corp or S Corp to C Corp.)
- If the business changed its entity when was the effective date of the change?
- Is the business selling as a Stock or Asset sale?
- What is the total equity (basis) in the business?
- If asset sale, projected sale price for assets?
- What percentage from the proceeds of the sale of the business will be divided into the following categories:
- Cash %
- Tax Free %
- Taxable %
- Tax Deferred %
- Total 100%
- How much as a lump sum in cash does the owner require when the business closes escrow?
As you can see, there are lots of questions.
Your tax professional should be able to assist and explain why each question is asked.
Alternatively, please give me a call on 916 570-2674 or email me at Andrew@RogersonBusinessServices.com and I can explain how I can assist with a tax and structuring analysis report that is specific to your business and your situation.