| Considerations on Selling Your Business | | | | individual income tax on any corporate |
| | | | distributions received by the stockholders. |
| By David N. Chazin | | | | Selling stock, instead, allows you, as a |
| | | | shareholder, to pay tax only once, at the |
| In conjunction with Sagemark Consulting, a | | | | more favorable 15% capital gains rate. There |
| division of Lincoln Financial Advisors, a | | | | is no corporate level tax. |
| registered investment advisor. Mr. Chazin is | | | | |
| a regular contributor to PlannerConnect. | | | | Owners of small businesses can get an even |
| | | | better deal. If you sell your business |
| Whatever your motivation for selling your | | | | interest as Qualified Small Business Stock |
| business, you'll only get one chance to | | | | (QSBS) and buy other QSBS, you may be able to |
| maximize the return on your years of hard | | | | roll over your gain tax free. (Additional |
| work. Do it the right way and you could get | | | | requirements apply.) Alternatively, you can |
| the price you want and reduce the impact of | | | | exclude 50% of the gain from your taxable |
| capital gains and estate taxes. Do it the | | | | income if you held the stock for more than |
| wrong way and you might end up with a hefty | | | | five years and meet other tax law |
| capital gains tax bill and estate-planning | | | | requirements. The remaining gain is taxed at |
| headaches. | | | | a maximum rate of 28%. In general, gain |
| | | | qualifying for the 50% exclusion cannot |
| You can increase your chances of a successful | | | | exceed $10 million or 10 times the QSBS's |
| sale if you coordinate your efforts and work | | | | base disposed of during the year (whichever |
| closely with a financial professional from | | | | is greater). |
| the very moment you start thinking about | | | | |
| selling your business. A financial | | | | Installment Sales |
| professional, with the assistance of a | | | | |
| qualified appraiser, can help you place an | | | | With an installment sale, you ask the buyer |
| accurate value on your business interest and | | | | for a downpayment and a note covering the |
| provide the critical insight and expertise | | | | balance of the purchase price. You report |
| needed to steer you through a complex and | | | | taxable gains as you receive payments from |
| time-consuming process. | | | | the buyer, rather than all at once in the |
| | | | year of sale. You also must report the |
| Potential Buyers | | | | interest payments you receive on the note as |
| | | | ordinary income. When correctly structured, |
| Consider your potential buyers. Are you | | | | an installment sale can "freeze" the value of |
| planning to place your business on the market | | | | the business at its sale price for tax |
| for anyone who's interested? Or, do you want | | | | purposes. So, if the business continues to |
| your business to stay within your family? If | | | | increase in value, your estate will not owe |
| so, do family members have the means to buy | | | | taxes on any appreciation generated after the |
| it? Might your senior managers or other | | | | date of the sale. |
| employees be interested in purchasing your | | | | |
| business interest? Dealing with succession | | | | Private Annuity Sale |
| issues early in the sale process is | | | | |
| important. Once you have, the next step is to | | | | Under this type of arrangement, the buyer of |
| determine the most advantageous way to sell | | | | your business agrees to make periodic |
| the business. Here's a brief overview of some | | | | payments to you for life in exchange for your |
| of these options. | | | | interest in the business. This approach |
| | | | guarantees you a lifetime income and is |
| Stock versus Assets | | | | taxable to you under special rules. Moreover, |
| | | | the annuity arrangement removes the value of |
| While buyers may prefer to buy assets, if | | | | the business from your estate for tax |
| you're selling an incorporated business, you | | | | purposes. |
| generally can get a better tax deal by | | | | |
| selling stock. In the case of a business | | | | To help maximize your financial return on the |
| asset sale, you may have to pay taxes twice - | | | | sale of your business, consult a financial |
| a corporate capital gains tax on the sale of | | | | planning professional before you put your |
| the assets (at the same rate as for the | | | | business on the market. |
| corporation's ordinary income) and an | | | | |