Tax Planning in the Sale of a Business

It’s not how much you sell your business for that matters, it’s the amount that you keep after taxes! Income taxes can easily reduce your net proceeds from the sale anywhere from 20% to 50%!

Leading up to the sale of your business, there are steps you should take to help maximize the value of the business. For example, reducing owner involvement in daily operations and having clean financials can help to increase the marketability of your business. When you have done the work needed to maximize your selling price, don’t blow it by failing to do proper tax planning for the sales transaction! Tax planning can potentially increase your after-tax proceeds by 10% or more while providing you with additional negotiating tools. But if you wait until after the contract is signed, it’s too late! Work with a tax professional who is knowledgeable about business sales transactions leading up to, and throughout, negotiations with potential buyers.

The goals of tax planning when selling a business are two-fold: 1) Shift as much of the gain as possible to long-term capital gains which are taxed at a more favorable rate than ordinary income, and 2) Shift ordinary income gains to a lower tax bracket while avoiding harsh stealth taxes.

How tax minimization can be accomplished in any given deal depends on the specific tax characteristics of the business, the seller, and the buyer.  There are numerous tax traps for the unwary seller to fall into.

The experienced CPA tax professionals at Dublin Advisors LLC can help. If you are planning to sell a business in Central Ohio, call to schedule a complimentary initial tax consultation at 614-674-1482.

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