You have decided to sell your Maryland business. Enjoy the profits you’ve earned by increasing the value of your company during your ownership. You need to ensure that you protect your business sale by taking care of all your seller obligations before you finalize the deal. You will have to pay federal and state tax when you sell your company.
You will have to pay tax on the sale your business. However, there are ways that you can reduce the amount of taxes you owe. Legal assistance for the sale your Maryland business will make the process smoother and reduce the chances of anything going wrong. What you need to understand about the tax implications of selling your Maryland business.
What are the tax implications of selling your business?
As you build your business, add assets, expand your operations, increase sales and make it bigger, the value of your business will grow. When you decide to sell your business, it will be worth more than when you first started. The basis of value is the amount that you paid for your business. Any increase in the value above this point will trigger capital gains tax on the part of the seller.
Business itself is a collection tangible and intangible items that are valuable. It can be difficult to reach an agreement between buyer and seller due to the way these assets are sold. Tax advantages are more favorable to the seller when they sell their company shares, while the buyer benefits from a sale of assets.
The buyer will be responsible for the tax burden if you decide to sell your company via a stock transaction. Taxes and the way they are paid depend on the structure of your business. This adds another layer of complexity to a sale. You want to pay as little tax as possible so that you can keep more of your proceeds. To achieve this, you will need to hire a Maryland lawyer for business who can help you reduce your tax liability.
According to a Maryland law called the bulk sales taxes, you’ll be required to pay tax on your sale.
What Your corporate structure does to the tax rate on the sale
Pass-through entities are businesses that are organized as LLCs or partnerships. Profits are distributed to owners, partners, and members. The taxes are paid on a personal level, not at the business level. A C corporation, on the other hand, may face the risk of double taxation after a sale at both the corporate and individual level and need to make a different kind of sale in order to reduce the tax liability.
The IRS has different rules that are applicable to each type of corporation. This can add a level of complexity to the sale of your business that you might not have expected. To avoid penalties for incorrect filing, you must also follow IRS rules. It is well worth it to hire a lawyer for the sale of your company. This will prevent mistakes and ensure that you pay the correct amount of taxes on your profits.
Selling a business?
There are two ways of selling a company: by selling the assets of the business or the stock of the business. The buyer is better off selling assets, as they offer tax benefits which reduce their ongoing tax obligations. The buyer can take immediate depreciation on assets sold and amortize any remaining balance over 15 years. The buyer can get a tax deduction of 100% over time and reduce their tax liability for future profits.
Asset sales can become complicated due to IRS requirements that all capital assets be classified and valued. Capital assets are real estate, inventory, depreciable items used by the business and any other tangible asset owned by the firm. Each asset’s loss or gain must be calculated individually and reported to IRS.
Sellers, on the other hand, get a greater tax benefit by selling their shares. The IRS taxed the sale at 15% based on its increase in value. As an example, if the initial cost basis for your business was $50,000 and it is now worth $500,000. You’ve gained $450,000 and will pay $67.500 in tax.
This may seem like a large amount of taxes to pay, but it could be less than taxes you would have paid on the sale of an asset. A seller can still benefit from the sale of an asset by claiming capital gains on the appreciation. The capital gains tax is only applicable if the seller has owned the asset for a minimum of 12 months prior to selling the business.
This is a simplified view of the two types of business sales. It shows the importance of making a decision early about the type of sale. Sellers prefer to sell shares, as they can benefit from capital gains tax rates. The asset sale is preferred by buyers because of the asset depreciation rules, which reduce their tax over time.
Maryland Bulk Sale Tax and Local Taxes
The state bulk tax applies to the sale of your company. The 6% tax is applied to the cost of the physical property included in the transaction. An exemption may be granted to a particular item, preventing it from being taxed. Taxes are applied to items such as computers, office supplies, furniture and other items which don’t form part of a business’s product or service.
The Benefits of Legal Assistance when Selling Your Business
By retaining a Maryland Business Attorney to sell your business, you can exit with minimal stress and burden. Lusk law, LLC can help you learn how to protect your interests and ensure that the best results are achieved during the sale of your company. We can show you ways to legally reduce your tax liability and make a profit.
The article Tax Aspects of Selling Your Business in Frederick, MD first appeared on Attorney at Law Magazine.