Taxes paid when selling a business

Tax on selling a business - These type of “cash out” payments are considered ordinary wage income, reported on a w-2 with payroll and income tax withholding, and will create an expense deduction on the selling entity's final tax return, even where the options are exercised prior to the deal being closed (although the exercise of a qualified incentive stock option prior to selling the stock to a buyer may avoid payroll and withholding tax on the ordinary income of the optionee). On the other hand, if you conduct your business through a c corporation, your flexibility on selling the business may be limited due to a c corporation's lack of “pass-through” taxation and the possibility that “double tax” will arise (at the corporate and shareholder level) where a c corporation sells its assets and distributes the proceeds to its owners. Sellers who take a position that they are selling personal goodwill or that are providing a direct covenant not to compete to a buyer, should anticipate that the irs might challenge such payments and attempt to treat them as if they were made directly to the corporate entity and then distributed to the seller on a “double tax” basis. The sale of capital assets results in a capital gain or loss; the sale of real property or depreciable property used in the business and held longer than one year results in a gain or loss from a section 1231 transaction; and the sale of inventory results in ordinary income or loss.

What are the Tax Ramifications of Selling a Business?

http://www.murphybusiness.com. Selling your business might be the single biggest asset you ever sell. So, understanding your tax ...