Unlock the Power of airSlate SignNow: Steps involved in the selling process for enterprises

How to create outlook signature

So you want to sell your business? Uh, let me tell you one of the biggest issues that we see from a tax standpoint, whenever somebody goes to sell their business. Well, first off, my name is Ray. This is Andrew with REH CPA. We put out a lot of these videos on YouTube. So if you like what you hear today, and you want some more information, then make sure you hit the like button and also hit that, uh, hit that notification bell. Thank you, Andrew. That notification bell to let you know when we have a new video out. Anyways, uh, back to our topic, Andrew. So what is it? So a lot of times when we get, uh, someone who's sold their business, it's usually after the fact we prefer to, they come to us first, before they sell so we can kind of go over some of these things. But a lot of the time it's after the fact, what, what is one of the biggest problems that you see from a business sale that we would like to try to get people in front of? Yeah. So there's two ways to sell a business. And a lot of it revolves around an asset sale. Nine times out of 10, it's going to be an asset sale. So when you sell the it's essentially what it is, you sell the assets of your company. Oh, the other way would be a stock sale where you're just selling the stock, the shares of the business. Yeah. Assets and a lot of time. I mean, we see those some, but they're just not the norm. So assets sales, you that's really, what did you sell? The, the computers, the chairs, the furniture, the fixtures, machinery equipment, all of the assets of the company and of that calculation there is what's called Goodwill. So Goodwill is all of the intangibles. That's going to be your name, your brand, your reputation customer lists, all of the intangibles of your company is made up of Goodwill. So the biggest issue we see is when somebody sells their business for, let's say a million dollars. So with all the assets, all the equipment, everything, a million dollars. Got it. But they did not say, well, how much of that sales price is going to be allocated to Goodwill? Because it's really important to know because Goodwill has, um, more preferred tax rates on the gain. You get, it talks of terms, capital gain asset, right? Exactly. So, so if you sell a business for a million dollars and $900,000 of that is to Goodwill, where then you got $900,000 worth of income there that's taxed on a long-term capital gain rate. Whereas if you have it there, the opposite where you have 900,000 applied to the fixed assets that you've depreciated through your business, you've taken tax deductions for, you have to there's, there's an ordinary income recapture piece to it. So all that means is you're going to pay higher taxes on that because that's all ordinary income where there's a portion of it's, that's going to be taxed as ordinary income and, um, it's just not a great tax treatment for this, for the seller, right? So. So if you're, if you're selling the business, you really want a high Goodwill valuation and a smaller valuation on the equipment portion. That's always kind of the game. Correct? So, and you know, the, the buyer wants the exact opposite. So you're, you're pinned against each other. So you got to get agreed on how you want to treat it, but the buyer wants the exact, because again, using the million dollar business sale as an example, if you buy Goodwill for 900 grand, you have to amortize that over 15 years, you have to write that off against your income over 15 years. So it takes a long time to kind of recoup that, right? Whereas if you have $900,000 allocated to equipment and tangible items, there's you, you oftentimes, you can depreciate those, even in like the. You get 179 that, and for a lot of it in the first year. Right? So, so you both pinned against each other. But the biggest thing is you, you both have to agree. It's not like. Yeah, and the IRS was silent on it because they don't care because two people have to agree. If one gets, if one gets it the way they want it, the other person didn't. So they there's a balancing, uh, effect there that the IRS just doesn't as long as both. All the IRS wants to know is that both parties agreed to how it's going to be treated. And we have to actually attach a tax form to your tax return saying all of this information, how it was split up. Or the business that, that, that purchased. So that way, cause they go look and make sure they filed the same form. So you want to be telling the same story. You do. So it's just, I mean, the biggest thing is just making sure when you're going through the process with your attorney, make sure it's your attorney, you know, spells that out in the paperwork that, that business sold for a million dollars, here's your asset allocation equipment, 900,000 Goodwill, a hundred thousand, just, it's gotta be spelled out in there. It makes our life easier. It'll make your life easier. So we're not trying to go back to somebody after the date to say, Hey, how do we want to do this? Because that is not good. It's not, not where you want to be. Not the situation you want to be in. So food for thought, just try to make sure you break that out. Awesome. I appreciate it, Andrew. Again, this is Ray Halstead, Andrew McMillan with REH CPA. Thanks for checking us out.