Tax Planning for Business Sales and Purchasing

Whether you're selling or purchasing a business, conscientious tax planning is essential. Whenever a business is transferred, there are tax ramifications for both buyer and seller. These tax ramifications could greatly affect the value of the business sale for both parties -- and it can be even more complicated when partnerships or more complex entities are involved.

The Tax Implications of Selling a Business

tax advisor for selling businessWhen you sell a business, you need to pay taxes on your gains -- the amount of profit that you made off of the sale your business. At its most simplistic, the amount of profit in your business is the amount that you've sold your business for less the amount that you invested into it. But, naturally, the situation can be far more complicated than that. The amount of money you've put into your business is referred to as the tax basis, and it is affected by things such as depreciation, casualty losses, selling expenses, and other factors.

You may be able to sell your business either for a lump sum or a scheduled payment structure, known as an installment sale, both of which will also have tax ramifications -- a lump sum payment will be taxed immediately, whereas scheduled payments will be taxed upon each received payment. Depending on your personal tax situation, scheduled payments may be preferable. But either way, the taxes will need to be paid upon your next tax filing.

There are a few special situations that may apply when selling your business. If your business is being purchased by another business, it may be able to be organized as a tax-free merger. If your business includes long-term capital gains, this will be taxed at a lower rate. Further, assets and stock sales have different tax consequences than an ordinary business sale.

The Tax Implications of Buying a Business

The tax implications for a business buyer tend to be fairly less complex than for a seller -- but there are still some complications that may arise. In general, the purchaser of the business will not be responsible for federal, state, and local taxes that are owed upon the company's sale. This tax liability will be the onus of the seller of the business. However, if the business does owe these taxes, they will likely need to be paid during the escrow process. If they exceed the amount that the seller would make from the sale (and the seller cannot cover the additional funds), the business sale may not continue.

selling a business what it means for taxesUpon acquiring ownership of the business, the buyer will assume responsibilities regarding taxes for that business. This includes payroll taxes, sales taxes, general excise taxes, and, naturally, income taxes. To ease this transition, the buyer should learn about the company's existing and scheduled tax liabilities, so that they can be paid quickly following the sale.

It's essential to consult with a company who specializes in business accounting and tax services before making the move to either purchase or sell a company. At Dukhon Tax and Accounting, you can get a free tax consultation regarding your purchase or sale. Dukhon Tax and Accounting provides expert income tax prep, tax consultations, and general tax and bookkeeping services for businesses and individuals throughout Allston.

Healthcare Tax Issues on the Rise

There are a number of tax issues surrounding healthcare that have recently taken center stage. The state of Colorado has proposed, and decided to vote on a single payer healthcare system, which would make it the first state to provide free healthcare for residents. This would be a huge move for the state, which under these provisions would allow residents to choose their healthcare providers, with all expenses paid by the state. Although this is a bold move, a 10 percent payroll tax raise has also introduced to offset the $25 billion a year cost of implementing this program. To pay for state coverage, employers would incur a 6.67 percent payroll tax fee, with employees paying 3.33 percent.

healthcare coverage in coloradoThis comes on the heels of the individual mandates for those who don’t currently carry health insurance. The upcoming tax year will affect a number of individuals who chose not to purchase health insurance will incur an individual shared responsibility payment. This will be an item on the federal tax return for the year in which coverage was not obtained. The fees for this penalty are calculated in two different ways:

  • It will be 2.5% of the household income; or
  • $695 per person, with $347.50 for each child under 18

To pay these taxes under the percentage method, the part of the household income above the yearly tax filing threshold will be counted. The people who will be affected under the per-person method are the individuals who do not currently carry health insurance in the household.

For those individuals who have had coverage for some part of the year, the fees associated will be 1/12 of the amount for each month the insurance has lapsed. Fees are deducted from the federal tax refund, or fees will be paid with the return for the year.

The tax penalties for healthcare coverage will continue to rise with each passing year as an incentive for individuals to sign up for healthcare. Consulting with a personal tax accountant or tax accounting service can help with your healthcare taxes for the current and upcoming year.