Selling a small business is complicated. There are many different things that you will need to consider in order to ensure that your legal rights and financial interests are adequately protected. Depending on the circumstances surrounding your specific small business, there is a chance that you could face a large tax bill as a result of the sale.
The good news is that with proper planning and skillful guidance from an experienced Colorado tax attorney, it is possible to minimize your total tax exposure.
1) Know the Tax Basis of Your Assets
If you sell your business interests, your transaction will be taxed as a capital gain. Simply put, this means that you will be taxed on the difference between the value of your shares when they were obtained (your tax basis) and the the value of your shares at the date that they were sold.
To know exactly how much you will be required to pay in capital gains taxes, you need to know the tax basis of your assets. With this information, you can best decide how to structure the small business sale.
2) Weigh a Stock Purchase vs. an Asset Purchase
There are several different ways to sell your business. Each one has different tax implications. For example, you may decide to go with an asset purchase or a stock purchase. As a general rule, a stock purchase creates tax benefits for the seller of the business, whereas an asset purchase creates tax benefits for the buyer of the business. Though, the extent of these potential benefits will always vary based on the specific business in question.
3) Consider the Possibility of a Tax-Free Deal
In some cases, business owners may be able to pull off a tax-free deal. While most small business sales are completed as taxable transactions, in certain cases, stock exchanges and other M&A type deal structures can be used to allow for tax-free treatment under the United States federal tax code. If you are selling your small business to another corporation, this is something worth reviewing and considering.
4) Think About Installment Sales and Tax Deferrals
Finally, another good way for small business owners to minimize their tax consequences is to defer taxation for as long as possible. Ultimately, time is money, and you may be able to put that deferred tax money to good use right now. By selling a business in installments, taxes can potentially be deferred.
Of course, this option is not always advisable, but in certain situations, especially when capital gain tax rates might change in the future, tax deferred sales could be the best available option.
Call Our Colorado Small Business Tax Lawyers Today
At Whitcomb, Selinsky, McAuliffe, PC, our Denver small business lawyers have extensive experience representing companies in Colorado. If you are selling your small business and you need tax law advice, please call us today at (866) 476-4558. Our team is standing by, ready to protect your legal rights and financial interests.