I am ready to sell my Business but... what about the Tax implication?
When it comes to selling a business, there are a few key things to understand about capital gains taxes. Capital gains are profits that are made from selling a capital asset such as a business. The gain or loss is calculated as the difference between the original cost and the sale price. Capital gains taxes are different from ordinary income taxes, and can be broken down into two types: short-term and long-term.
Short-term capital gains taxes apply to businesses that are held for less than one year. If a business is held for less than one year and is then sold, the net capital gain is taxed as ordinary income, based on your tax rate (up to 37%). Long-term capital gains taxes apply to businesses that are held for more than one year If a business is held for more than one year and is then sold, the net capital gain is taxed at a lower rate, no higher than 15% for most taxpayers.
When a business is sold, it is considered a sale of a bundle of combined assets, rather than a sale of one lump sum. This can get complicated, so it's always best to consult with a tax professional when selling a business. It is also important to plan ahead so that you don't get caught off guard by the taxes you may incur as a result of the sale.
When you're ready to sell your business, there are a few steps you'll need to take to ensure that the process goes smoothly. First, you'll need to hire a professional business broker to help you with the sale. That business broker will gather specific financial information from you to determine the fair market value of your business. Business brokers do extensive research and look through their database of sold businesses for comps that relate to the business you wish to sell.
Once the value of your business is established and you have a sales price, your broker will send over a Marketing Agreement and get to work on producing the advertising materials required to list your business. Then the broker will begin working with buyers and vetting them to be able to present to you the best buyer candidates for your business.
Once a buyer is found, your broker will facilitate a meeting together to have an opportunity to ask specific questions and assess if they are a good fit for your business. If the candidate is a good fit then the broker will discuss writing up an offer on the business. Your broker will handle all negotiations and execute the required paperwork. Then starts the Due Diligence timeframe and the preparation to go to closing. The timeline can vary depending on the scope of the business.
When you're selling a business, it's important to keep in mind that the sale may trigger a number of other taxes, such as income taxes, self-employment taxes, and state and local taxes. You'll need to consult with your tax professional to
determine what other taxes may be due.
While this all may seem rather daunting, there is no need for concern. A Transworld business broker will have gone through this process many times and will be able to guide you through each step making sure that you stay well-informed and connected with professionals that can protect you legally and professionally. Relying on the wisdom and experience of a seasoned broker will save you hassle and frustration as well as time and money.
If you are considering selling your business, be sure to contact one of our brokers. We have a proven process for ensuring that your business is properly prepared for the market and receives the maximum exposure from qualified buyers. You can click on the link or give us a call at the number listed below.
