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Tax Implications of Selling A Small Business

If you own a small business, part of your retirement strategy may depend on the successful sale of that business at some point in the future. If so, proper tax planning is essential. From a tax perspective, how the sale of an LLC or corporation is structured can mean big consequences to both the buyer and the seller.

One important question is exactly what is being sold? Will it be the business entity itself or just the assets? The answer to this question will depend on what the buyer and seller are trying to accomplish. Oftentimes, the seller wishes to sever liability for the actions of the business once the sale is complete, as well as ensure that he is no longer on the hook tax-wise for any gains the company earns once the business has been sold. The buyer on the other hand, usually does not wish to succeed to any liability but may not have any issues with sharing some of the tax consequences on gain.

What about goodwill and going concern? Everyone understands that big names like General Electric, Rolex, and Mercedes have value, however this is often just as true with a small local business that has served the community well over the years. How is this goodwill to be valued and how is it to be taxed?

Many times the buyer and the seller can come together with their attorneys to determine the answers to these questions. Often, if the parties can agree on how to allocate value to the various assets of a business, the IRS will accept this valuation without issue. It is important for business owners to understand that the successful sale of a business takes proper planning with emphasis on the finer points of the transaction. There is nothing worse than paying the IRS more of your retirement fund than you prepared for.

If you are interested in selling your business, contact an Attorney in Jacksonville to speak to an experienced tax attorney.