I'm selling a business. How much taxes must I pay?

Question

I bought this small restaurant for $50,000 nine years ago in the state of Oregon. I'm selling it now for $51,000. Someone told me that I'd have to pay tons of state and federal tax.... is this true? How much or what percent must I pay???

Answer 1

I am answering only with regards to the real estate involved, the restaurant building. If you are selling the business as a going concern, there are other considerations which I am not dealing with.

If you depreciated your property (or were allowed to depreciate) as you filed your taxes the past nine years, then when you sell your restaurant your gain is not $1K but the difference of the sales price and the depreciated value of the restaurant.

Say you were depreciating the restaurant over 39 years, which is typical. You have depreciated let's say $11,000 as an example. I would need to know more, as the value of the land, if there were other assets involved, to be accurate. But with this figure, your gain is $12,000. You pay capital gains tax on $1,000, which is 5% or 15%, and tax on gain due to depreciation (which is $11,000 in this example) which can be up to 25%.

Answer 2

You didn't say if you invested more money oover the past 9 years. Assuming not, the GAIN is taxed 51K-50K=1K. Federal tax on a capital gain is 15% max. Woohoo! $150 fed tax.

This assume you sell the stock of the company if it is a stock company or that you sell the business as a whole if it is a sole proprietorship. If it's a corp and you sell the assets, there's a bunch of rules.

The WealthBuilder
Tax Specialist

Answer 3

Are you selling the assets or are you selling the stock in a small corporation? It makes a difference.

Answer 4

bought for 50, sold for 51. Profit is 1K. Profit is income and or capital gains. pay tax on 1K.