The tax effects of buying or selling a business might be dramatic enough to sway your decision one way or the other. This is certainly something to consider, whether you are buying or selling a small business that operates out of a home or a large business that involves big money.
Here are a few things to consider when trying to determine the tax effects of buying or selling a business.
Business entity
For those that run an LLC or sole proprietorship, the process is relatively simple — at least, in terms of selling the business. The amount of money you make on your business will be taxed at your personal rate. If this is an LLC with multiple partners, the percentage of each partner’s profit will be taxed at their personal level. This picture can get a little murky when it comes to, say, an S-Corp or C-Corp.
Tax-Free Maneuver
Normally, buying and selling a business is a taxable transaction because money exchanges hands. However, if the two sides are merely trading stock, both sides could avoid the traditional tax effects of buying or selling a business. This is an arrangement you might see when a big corporation buys out a small business. The smaller business could exchange their stock for a stake in the corporation.
You can also structure a taxable asset or stock transaction deal, which is fairly common.
Taxes Involved With Buying A Business
If you purchase a business, you actually do not owe the federal government anything in taxes on the exchange. However, you will have some tax concerns.
When you purchase the company, you will also inherit all of that company’s tax liabilities. This includes any outstanding bills or pending tax audits. So, this does not allow you to skirt tax issues all together.
Get Accounting Advice
Discussing all of the tax effects of buying or selling a business would take a very, very long time. The truth is, taxes are a complicated process, which is why it is essential to seek the right help. Local accountants can help you muddle through the complex process of taxes. Use TalkLocal to help you find the proper help. We offer a free service that shows results — and fast.
