What are the tax implications of buying or selling a business?
For tax purposes, if you are buying a business, an asset purchase is usually to your advantage. In an asset purchase, you can obtain a stepped-up tax basis in the purchased assets, which can create opportunities for tax write-offs. If you purchase a business entity, you are acquiring the fully or partially depreciated value of the assets, which does not affect the tax basis.
As a seller, your tax interest is just the opposite, and an entity purchase is usually advantageous. This is because you can report the entire gain from the sale as a capital gain on your tax return. In an asset sale, you may have to report large amounts of ordinary income rather than capital gains because the assets may have depreciated or be subject to recapture. Moreover, if your business is a corporation, stockholders may be subject to double taxation.
In addition, remember that an entity purchase transfers any existing tax liabilities from the seller to the buyer, whereas an asset purchase generally does not. For example, if the business owes back taxes, then in an asset purchase, those taxes would remain the responsibility of the original owner. An entity purchase, on the other hand, would make those back taxes the responsibility of the new owner.
Let a Mesa tax lawyer help you move forward
Whether you are trying to sell your business or you're looking to make an acquisition, having an experienced Mesa tax lawyer in your corner throughout the process can prove to be essential.
Our legal team can provide you with information and research that's important for your transaction and help resolve any issues that pop up in the process. Don't go into a business purchase or sale alone. Trust the Mesa tax attorneys at Brown & Jensen to look out for your best interests. Contact us today for a consultation.