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How to Structure the Sale of Your Business to Maximize Your After-Tax Gain

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There are many different ways to structure a transaction and each has aspects that can be optimized to minimize the tax on the sale.

Selling stock of an S or C corp results in a capital gain for the seller, which is taxed at favorable tax rates for individuals. However, a buyer may want just the assets or selected assets of the corporation. In that case, the C Corp has to pay tax on the asset sale and the owners have to pay capital gains tax on the distribution, creating two layers of tax.

exists that characterizes part of the capital gain to ordinary income on so-called"hot assets" such as inventory and accounts receivable.qualified small business stock When you receive stock, you're taxed on it. Let's assume you're paying 20% tax. If you get $10 million in cash, you pay the $2 million in tax and put the residual in your pocket. But if you also got another $10 million in stock, that would double your tax bill and eat into your cash portion of the transaction significantly, leaving you with $6 million in cash and $10 million in stock. In addition, you take on the investment risk of the stock that you are receiving.

 

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