Warning: You Need To Let Tax Advisors Show You The Return And Cost, Your After Tax Return As The Seller, And The After Tax Cost For The Buyer.
Few people get by the obvious. Tax advisors like tax lawyers and tax accounts are trained to look beyond the obvious. Their sole mission is to analyze and then advise on structure to minimize the tax consequence for both buyer and seller. They are specialists, and their advice on tax efficient structuring can put more money in your pocket.
And that is your prime objective. You want to put more money in your pocket. You have worked hard in and on your business. And now you want to be rewarded for all your effort and creativity. At first glance, the cheque you get from the sale of your business is yours. That is partially correct. It is yours after you pay the greedy folks from the government what they believe is theirs in the form of tax. So you can only count on the money you get to keep after paying the tax.
Tax advisors examine your proposed transaction, and generate tax saving options. One option might look something like this. Suppose the selling price that you agreed to was 15, and ignore currency units for the moment. If you received 15 today the government will expect its share soon. And you will be taxed at your current rate. A tax accountant might advise you to accept 10 today, and take 1 each year for the next 5 years as part of a non compete agreement.
That way the tax on 5 units would be avoided immediately, and paid at an expected lower rate as each single unit was received. You will pay less tax overall. And this structure may also work well for the buyer. Payments on a non compete agreement can frequently be paid out of operating earnings, so are an expense to the business. Also the buyer will need to come up with less initial capital to buy the business, without incurring additional debt. That end result, one that benefits both parties is part of the world of tax advisors.
You are probably wondering about the difference between tax lawyers and tax accountants. And which to use in selling your own business. To start with the obvious, one is a lawyer, and the other is an accountant. And to complicate matters, some have both kinds of qualification. As to which of these tax advisors you should employ, unfortunately there are few general guidelines.
The best advice that I can give on whether you should use a tax advisor in selling your business is to ask. And understandably the greater the difference between what you paid for your business, and what it will realistically sell for, the greater your need for a tax advisor. One of the reasons that it is not wise to generalize or guess is that the need is based on prevailing tax rates and rules. And we are in an era where they are likely to change rapidly.
However, in whatever way they change it is hard to imagine the tax regime becoming less complex. It is almost axiomatic that the price for any change at the legislative level, is the addition of various and specific exemptions and exceptions. All to satisfy the perceived wants of the constituents of the most vulnerable of the legislators in time for the next election. So I don't foresee the role of tax advisors diminishing.
As in other warnings on this website be choosy when picking a tax advisor. You are unlikely to need both a tax lawyer and a tax accountant. Don't pick the lawyer that handled your cousin's divorce regardless of how talented he was, unless it involved some highly complex and costly tax issues. Similarly don't choose the accountant competing with H&R Block for the speedy completion of individual tax returns. Look for people with track records for success with sales transactions like yours.
There will be tax advisors specializing in dealing with the sale of businesses in your industry. There may be industry driven peculiarities that will take an ordinary tax advisor much time to learn about, but someone already advising on these transactions will know. Again it is usually practical to find someone with experience as closely related to your own specific situation as possible. Particularly if it doesn't cost more, or inconvenience either you as the seller, or the buyer.
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