preparing taxes

Exiting a Small Business With a Smart Tax Strategy

Hiring an accountant to work alongside his lawyer to structure the deal was a good investment and while the price of hiring professionals to handle the sale was high, It was the best decision he feels.


When you offer your small business for sale, it could be more than a financial decision; it could also be an emotional one. Hence finding the best consultants to help you is crucial.

Selling your business is a complicated procedure and includes various steps. Finding the right buyer is just the first step, finalizing the right price is very is important along with structuring the deal in a way that minimizes tax charges.

[pullquote align=”normal”]You can do some DIY [do-it-yourself], but you’ll find very quickly, if you attempt to read the tax act, that some paragraphs are beyond average comprehension. [/pullquote]

In 2014, when entrepreneur Andrew Sider decided to sell his mobile discussion platform Bunch to online marketplace VarageSale, he did not imagine that dealing with the tax charges in the deal would be such a complicated affair.

“You can do some DIY [do-it-yourself], but you’ll find very quickly, if you attempt to read the tax act, that some paragraphs are beyond average comprehension.” Sider said.

Hiring an accountant to work alongside his lawyer to structure the deal was a good investment and while the price of hiring professionals to handle the sale was high, it was the best decision he feels.

Business owners who are looking to exit have three options, they could either sell the company, including its shares, assets, inventory, equipment and goodwill, or they could sell the business only while keeping the corporate structure, else they could cease business operations and keep the company.Most small business owners prefer to sell the company outright; this allows them to take advantage of lifetime capital gains exemption.

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Capital gains exemptions increases every year, and not all companies qualify. Companies must meet certain qualifications including being an active business.

There are some companies which can’t be sold, such as a one-person consulting business which does not have any assets that can be sold. The business owner of such a type of company can either keep their money in the corporation or withdraw it as needed as a salary or in dividends. When a small business owner sells his business only but not the company, they too can keep their money in a corporation and withdraw as needed.Keeping the money in a corporation is a way for small business owners to defer tax, as the money will grow until they need to withdraw it.Most financial planners recommend that small business owners retain their money in a corporation as long as possible, instead of pulling out the money into personal investments. The investments opportunities of a corporation are very different than personal investment and can be a big advantage.Keeping the corporation alive until it runs out of money is another way to keep taxes at a minimum, withdrawing smaller sums as needed makes it much easier to deal with the taxes.