Companies often perform a sale of the business when they retire or stop using it. This is called a Business Sale. There are various reasons why this happens, including holding more than one business, wanting to divest assets in order to reduce estate and gift taxes, or wanting to transfer ownership of the company without paying taxes on shubhodeep prasanta das capital gains.
The proceeds from a business sale are not subject to any tax unless there was also an asset sale that was completed at the same time. Here are the reasons for selling a business and help guide you through the process.
The Single Owner Company
If a company has just one owner, it might make sense to transfer ownership of the company to the owner’s children in order to pay for their college education. However, transferring ownership to the children does not affect the income tax liability of the owner. An owner can transfer all of the company’s assets without incurring additional taxes. Therefore, a transfer to his or her children can be done without any tax implications.
Selling Assets Previously Held By The Parent
When stock or assets are transferred from a parent company to a subsidiary, it is called an asset sale. No taxes are incurred by selling the assets if the subsidiary is still a corporation. However, if the company was sold and converted into an S-Corp, C-Corp or LLC, then capital gain taxes would be incurred.
Selling A Business To Pay Estate Taxes
Estate taxes can be significant for people who own businesses worth over $5 million dollars. For example, if a business is worth $5 million dollars and the business owner’s estate is worth less than $1 million dollars, the estate will owe taxes on all of the assets including real estate and businesses. If a business sale is utilized to pay estate taxes, the sale of the business would not incur any capital gains.