Considerations on Selling your Business

Considerations on Selling Your Businessordinary income) and an individual income tax on any
By David N. Chazincorporate distributions received by the stockholders.
In conjunction with Sagemark Consulting, a division ofSelling stock, instead, allows you, as a shareholder, to
Lincoln Financial Advisors, a registered investmentpay tax only once, at the more favorable 15% capital
advisor. Mr. Chazin is a regular contributor togains rate. There is no corporate level tax.
PlannerConnect.Owners of small businesses can get an even better
Whatever your motivation for selling your business,deal. If you sell your business interest as Qualified Small
you'll only get one chance to maximize the return onBusiness Stock (QSBS) and buy other QSBS, you
your years of hard work. Do it the right way and youmay be able to roll over your gain tax free. (Additional
could get the price you want and reduce the impact ofrequirements apply.) Alternatively, you can exclude
capital gains and estate taxes. Do it the wrong way50% of the gain from your taxable income if you held
and you might end up with a hefty capital gains tax billthe stock for more than five years and meet other
and estate-planning headaches.tax law requirements. The remaining gain is taxed at a
You can increase your chances of a successful sale ifmaximum rate of 28%. In general, gain qualifying for
you coordinate your efforts and work closely with athe 50% exclusion cannot exceed $10 million or 10
financial professional from the very moment you starttimes the QSBS's base disposed of during the year
thinking about selling your business. A financial(whichever is greater).
professional, with the assistance of a qualifiedInstallment Sales
appraiser, can help you place an accurate value onWith an installment sale, you ask the buyer for a
your business interest and provide the critical insightdownpayment and a note covering the balance of the
and expertise needed to steer you through a complexpurchase price. You report taxable gains as you
and time-consuming process.receive payments from the buyer, rather than all at
Potential Buyersonce in the year of sale. You also must report the
Consider your potential buyers. Are you planning tointerest payments you receive on the note as ordinary
place your business on the market for anyone who'sincome. When correctly structured, an installment sale
interested? Or, do you want your business to staycan "freeze" the value of the business at its sale price
within your family? If so, do family members have thefor tax purposes. So, if the business continues to
means to buy it? Might your senior managers or otherincrease in value, your estate will not owe taxes on
employees be interested in purchasing your businessany appreciation generated after the date of the sale.
interest? Dealing with succession issues early in thePrivate Annuity Sale
sale process is important. Once you have, the nextUnder this type of arrangement, the buyer of your
step is to determine the most advantageous way tobusiness agrees to make periodic payments to you
sell the business. Here's a brief overview of some offor life in exchange for your interest in the business.
these options.This approach guarantees you a lifetime income and is
Stock versus Assetstaxable to you under special rules. Moreover, the
While buyers may prefer to buy assets, if you're sellingannuity arrangement removes the value of the
an incorporated business, you generally can get abusiness from your estate for tax purposes.
better tax deal by selling stock. In the case of aTo help maximize your financial return on the sale of
business asset sale, you may have to pay taxesyour business, consult a financial planning professional
twice - a corporate capital gains tax on the sale of thebefore you put your business on the market.
assets (at the same rate as for the corporation's