Currently the top individual federal income tax rate is 37%, more than twice as high as the long-term capital gains tax rate. Proceeds treated as ordinary income are taxed at the taxpayer’s individual rate.
The maximum tax rate on capital gains for most taxpayers is 15%. If you sell an asset that you’ve held for more than 12 months, the proceeds will be treated as long-term capital gains. The difference between the two has major tax implications. Then there is the matter of how a sale of business assets will be taxed - as long-term capital gains or as ordinary income. Instead, with few exceptions, all the individual assets of the business are treated as if they were being sold separately. How Business Sales Are Taxedįirst, to the IRS the sale of a business usually is not considered to be the sale of a single asset. Different states have different rules and may collect more or less taxes than the IRS on the same deal. Keep in mind these issues are relevant for federal income taxes. Whether the sale can be treated as a tax-free merger in the case of a deal between two corporations.
Whether the sale is one of assets or one of stocks.If the sale is an all-cash deal or requires payment installments.Whether proceeds of the sale are taxed as ordinary income or capital gains.There are four main tax-related issues to keep in mind when selling a business: Other decisions will be negotiated by the buyer, since their interests can ran counter to the seller’s. However, some of those choices are restricted by the Internal Revenue Service. The tax side of selling a small business has many moving parts, and as the seller, you’ll have a lot of decisions to make.
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