Friday, March 30, 2007

Dismantling a Business Isn't Always Easy

When people come to me to help them minimize their tax burden upon selling a business, they often don't have a clue what tax consequences await them.

Every business is different, but here a some of the factors that determine how much tax will be owed. It can become quite complicated, depending on the business structure, the assets of the business, the parties involved in the sale, etc.

  • What entity structure does the business have? C-Corp, Partnership, S-Corp, LLC, Sole Proprietorship, etc. Each entity is taxed differently with different rules
  • Who are the owners/partners/shareholders/members, etc. and how is ownership divided?
  • What is the sale comprised of? Assets, inventory, real estate, client list, good will, etc.
  • Will the entity be shut down on sale or remain intact?
  • Do all of the partners agree on sales terms and goals?
  • Will the sale be broken down by types of assets, or sold as shares of the company?
  • If real estate, when was it purchased, how much debt is there, what is adjusted cost basis, how is the property titled, how much has it been depreciated and by what methods,etc.
  • If the sale is within the entity, how do you plan to get the proceeds back to the owners from the entity? Will you get doubly taxed as capital gains and then income tax?

When a business is started and is growing, usually little thought is put into how it will eventually be sold, dismantled and distributed. It can get very complex, but an exit strategy is crucial to maximize return. The sale is often for retirement income, and it can be a very rude awakening to find out when it is too late that the money actually kept will not support you as you had hoped.

This is an area you probably don't want to take upon yourself without help from experienced professionals who can guide you to the best outcome possible.

Paula Straub


Fill out a Qualification Questionnaire to determine what capital gains tax strategies will help you most.