How much tax? Selling business profitable tips
The world’s most influential publications report on the growth of the stock market in recent years.
About 100,000 businesses are bought and sold annually, and market turnover is estimated at 50-100 billion dollars. Approximately half of this amount is taxes paid to the state, which constitutes a high percentage of the country’s profit. The business market is a serious arena for the battle of both private investors and qualified brokers. When you sell a business – how it is taxed, also as popular selling and purchasing options are further in the article.
How much tax do I pay when I sell my business?
If it’s time to sell your business and you want to achieve a high sale price, you need to create the same business plan as when you founded the company. It is necessary to take into account all aspects of selling a business in parts or the company as a whole. To sell your business online with all the production facilities and paperwork involved, it can take months, or even years – but in the case of Website Closer online agency, it’s a really lightning fast process.
While selling a business, it is necessary to take into account all cost items, since registration may require the involvement of sessional specialists, such as an accountant and a lawyer. The tax required to be paid is capital gains tax. When selling a business, you will definitely need to pay special attention to capital gains tax, as it has a complex structure. Capital gains tax is levied on the sale price of a business if it exceeds the cost basis of the business. The capital gains rate ranges from 15 to 40%, depending on the size of the business and its final value. Estate tax on business sale is a key parameter for precise calculating of a total business price.
How’s the deal going?
When drawing up a business plan and documenting the transaction, it is imperative to take into account all the smallest details. Qualified specialists follow three paths:
- Selling a business through a charitable foundation. In many countries, the sale of a business through a charitable foundation is tax-free, and the paperwork is fast enough to conclude a fixed-term agreement. Most targeted charities are tax-exempt—you won’t pay tax on selling a business on the sale of the business, but the cost of completing the transaction may be slightly higher. The proceeds from the sale can be immediately reinvested in the same charitable foundation – usually such organizations have several existing areas open for investment;
- Sale by installments. When selling a business in parts, you can take advantage of the preferential rates offered by your bank – or you can use the opportunities and options provided by various credit institutions. In this case, property tax on business sale must be paid immediately upon execution of the contract – depending on the type of organization, taxes can also be paid monthly or over another period. Moreover, there are alternatives. A business owner can use an installment sale to spread expenses over several years. At the same time, de facto, the business remains in the ownership of the entrepreneur, but new owners join the company’s board of directors. The business mechanism will not be affected, and representatives of the buying party will be 1-2 people, plus an accountant or lawyer. If the sale of a business in installments is for a long period of time, then the tax rate can be reduced.;
- Investing in Opportunity Zone Funds. When selling a business, sales tax on business costs can be reduced by investing in an opportunity zone fund. In this case, you can use government tax incentives, reducing the tax rate to a practical minimum. Many developed strata funds have established mutual funds that have tax holidays until 2026, including full income tax exemption. Note that you do not receive any liquidity. Opportunity zone funds are an unprecedented new class of investment entities with uncertain returns.
Conclusion
Selling a business is a labor-intensive process that requires special attention to the legality of the contract. In addition, it is important to draw up the contract correctly, researching the facts and paying attention to every smallest detail. Be sure to involve relevant specialists – an accountant and a lawyer. The broker concluding an agreement with you must have several options for investing funds from the sale of the business. Carefully study the broker’s investment portfolio.
The most important aspects of selling a business, of course, include the likely reduction in tax rates. Several methods can be used to reduce the tax bill – using the property as an intermediary and representative of a charitable organization, selling in parts, or documenting the transaction and then reinvesting it in an opportunity zone fund. Don’t miss your chance to conclude a business sale deal as profitably as possible.