Tax Planning for the Sale of Your Business
During recent negotiations for the purchase of a company, it was asked of the Seller if they had consulted outside tax advisors to point out any tax considerations they should consider. The answer from the Seller was an unequivocal yes. My client (the Buyer) and I reiterated that there were many items that the Seller should discuss with their tax advisor, such as depreciation recapture, ordinary tax rates versus capital gains rates, asset purchase versus a stock purchase, allocation of the purchase price to Non-Competes, and Goodwill, etc. He again assured us that these discussions had been discussed with his tax advisor.
We continued our negotiations with the Seller and came to a mutual agreement on the terms and amount of the purchase price. However, it turned out that his tax advisor was not the person he would be using to advise him on this transaction. He had been relying on his current tax preparer, who had no experience in the sale of a business. In the end, he discovered that the tax that would be due on the sale of his business would be significantly greater than he had been advised by his tax preparer.
The moral of the story is that both a Seller and a Buyer should seek outside professional tax advice from people who have experience in the area of Mergers & Acquisitions. A clear understanding of what the tax considerations are in entering into a transaction of this magnitude are needed by both the Seller and Buyer.
If you want to chat, give me a call at 201-523-6326 or Email me at firstname.lastname@example.org.