Planning for Closely Held Business Owners - 12 Financial Implications and Tax Treatment of Business Sales Flashcards
What are business sales?
sales refer to any transactions where money or value is exchanged for the ownership of a good or entitlement to a service. In an accounting context, sales refers to a company’s revenue earned from the sales of products or services (net sales).
What are some examples of buisness sales?
Distribution sales: Businesses sell products to distributors who will then sell that same product to the consumer (groceries, pharmaceuticals, Walmarts, etc.) Service sales: Businesses sell services (tangible or digital) needed to run other businesses (consultants, software, etc.)
What is the tax treatment for private and public sales?
Public: Raising Capital. …
Gaining Higher Share Valuation. …
Funding for M&A Transactions. …
Reducing Corporate Debt. …
Maintaining Corporate Identity and Becoming Better Known.
Attracting and Retaining Employees. …
Time Commitment. …
Distraction from Business and Missed Opportunities
Private: Both buyers and sellers are spared having to make instant decisions: a buyer can consider a price he is willing to pay, while a seller can reflect on an offer before deciding to accept or refuse it.
What is the tax treatment for recapitalization?
A recapitalization is generally income tax-free. Under IRC §368(a)(1)(E), no gain need be recognized upon a so-called “E reorganization.” In order to be valid, the reorganization must have a legitimate business purpose, such as estate planning, beyond mere tax avoidance.
What is the tax treatment for SCINS?
As long as the purchase price and interest rate are reasonable, there’s no taxable gift involved.
What is the tax treatment for employee stock ownership plan (ESOP)?
And importantly, like a 401(k), an ESOP is tax-advantaged. Whatever portion of the company is owned by the ESOP pays no federal or state corporate income tax. That’s right – if a company is 100% owned by its employees through an ESOP, the government does not tax its profits at all.
What is the tax treatment for seller financing and third-party?
Seller financing can be used to defer capital gains taxes on the sale of a business or property. Deferring your capital gains tax means that you don’t have to pay taxes on the money you make from the sale until a later date. Typically, when a business is sold, the seller will pay taxes on the entire profit.
What is the tax treatment for private annuities?
If structured correctly per IRS rules, the private annuity is treated as a sale and not as a gift, so it is not subject to gift or generation-skipping transfer taxes. The private annuity reduces the estate of the annuitant for estate tax purposes.
