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Tax Structures To Consider When Selling Or Buying A Business

Maryn Williams • Mar 23, 2020
With all of the hard work that goes into running a business and bringing it to a state where it can be acquired, you do not want to miss out on potential profits by making an unfortunate mistake. To be specific, taxes matter when you are buying or selling a business and choosing the right tax structure can either mean more or less money for you when the deal is done. Since there are many different ways to go about it, finding the best tax structure to use when selling your business is an important consideration.

If you have purchased or sold a business in the past, then you may have some knowledge of how tax structures can change the outcomes of a deal. However, first-time buyers and sellers often have little guidance on the importance of these details. Whether you need a reminder or a comprehensive introduction to the subject, it is best to start with the basics.

Let’s look at how to choose the best tax structure when selling your business.

Business As Assets

When it comes to the taxes that you will have to pay when it is time to sell your business, the more of your business you can sell as an asset, the better. Assets are subject to capital gains taxes as opposed to standard income taxes, and the former are far lower. Based on the IRS rules for what counts as a tangible asset, consider whether you can fit components of your business into the nine categories that they outline. Profits from other sources will generally be taxed according to the rules of ordinary income tax.

Installment Sales

If you think it will be beneficial to pay the taxes of your business sale over a period of time rather than all at once, an installment sale is the best tax structure to use when selling your business. An Installment sale allows you to make tax payments as the payments for your business (from the sale) are paid to you over time.

Many corollaries apply when it comes to installment sales and only those components of your business subject to capital gains taxes are eligible for this form of tax structure. Payments for inventory and accounts receivable, among other significant components of your business, are not able to be paid with an installment structure. It is best to consult with our team of professional business brokers at Tennessee Business Brokers to determine if this is the best choice for your business. 

Find The Best Tax Structure When Selling Your Business

This primer provides an introductory look at how tax structures affect the outcome of buying or selling a business. However, meeting with our team of trusted and experienced business brokers at Tennessee Business Brokers is a great way to determine the best tax structure to use when selling your business. By working closely with our team of dedicated professionals, you will be able to get detailed advice that addresses the particularities of your business. Important decisions like buying or selling a business will benefit from objective and informed guidance.

Special Note: Your Business Broker is neither a CPA or Tax Specialist. As always, when buying or selling a business, please be sure to consult with your own tax advisor before entering into or closing on the sale/purchase of any business!
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