Business sales are taxed as capital gains. The sale price minus the original cost is the capital gain, and the tax rate is much lower if the business was held for more than a year. Note that a business sale can be executed as an asset sale or a stock sale. Also, business assets (e.g., machinery) are included in the value of the sale. Purchase Price Allocation is the method used to calculate fair market value, and it may include intangible assets such as the business logo. Two methods of executing a transaction are to exchange stock and to use installments, which spreads out the tax burden. Finally, in addition to federal tax, state taxes have to be considered. To negotiate all of these issues, hiring a tax advisor is recommended.
Key Takeaways:
- A business acquisition transaction can be conducted as a stock sale or an asset sale.
- Installation and training costs (but not maintenance costs) may be added to the purchase price of a business asset.
- Installment sales are popular because they spread out the income over time, thus lowering the tax.
“Business sales are taxed based on your capital gain. The capital gains tax rate will be the same as whatever tax rate you pay on your ordinary income taxes. Capital gains are treated as income.”
Read more: https://smallbiztrends.com/2021/07/selling-a-business-tax.html
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