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The
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TAX MINIMIZATION
ANALYSIS For the seller of a business, the tax consequences of a sale
affect the after-tax cash flow as much as the selling price of the business.
It is of utmost importance for the seller to know what his or her after-tax
cash flow will be in order to: 1) determine a selling price, and 2) know the acceptable tax position
he or she can take. The
Tax Minimization Analysis is an analysis
of the key tax positions sellers should consider when they put their business
up for sale. 1) The Stated
Transaction – This analysis assumes the transaction is structured as if the buyer
were to dictate the terms of the agreement.
Under this analysis, assets are sold for their fair market value
providing the buyer with a stepped-up basis.
Selling depreciable assets, inventory, and accounts receivable to a
Buyer typically results in higher tax rates for the seller. This type of transaction is generally
advantageous to the Buyer. 2) The Proposed
Transaction – This analysis assumes the transaction is also an asset sale,
but makes some modifications to avoid tax consequences as in The Stated
Transaction. The key is the allocation
of assets. Our analysis will show the
benefit of this type of transaction over the stated transaction. 3) The Stock Sale-
This analysis assumes the transaction is a stock sale. Stock sales usually offer the best
structure for the seller. The entire
sale is capital gains to the extent of gain on the sale of the business. Capital gains are presently taxed at the
low federal rate of 15%. 4) There are also
special situations which require analysis for the best possible sale. An example of which is the sale of a C
Corporation. When C Corporations are
sold, there is a layer of tax at the corporate level and a layer of tax at
the shareholder level. These issues
are thoroughly examined in the Tax
Minimization Analysis. Personal
Goodwill is used whenever possible in these situations. We recommend that brokers order a Tax Minimization Analysis as soon as they
retain the client in conjunction with a valuation. Please contact the tax specialists at The
Center for Financial, Legal & Tax Planning, Inc. for more details and
costs. |
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The Center
for Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 © Copyright 2005. All rights reserved. |
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