How do I minimize taxes Selling a small business s corporation?

Question

I'm selling a business and obviously want to minimize taxes.

I'm fimiliar with the 1031 exchange but was wondering if there are other options.

Regardless of the 1031 I need to reinvest the majority of the money into 2 businesses.

Thanks.

Answer 1

Without knowing the complete picture, I can only offer the following advice.

A. With 1031, you point out you still need to reinvest it. Do you want to reinvest and postpone the gain? And wait until something happen and step-up method without paying the income tax. Remember if Republican take over, they will have no Estate Tax. And there is no step-up.

B. With the current tax rate, you may want to consider sale the S corp as sale of stock.

Sale of Stock vs. Sale of Assets

When you sell stock, gains or losses are generally treated as capital gains or losses. Some items — goodwill, most real property gains, and any appreciation over the original cost of equipment — qualify as capital gains.

On the other hand, when you sell individual business assets, such as inventory or equipment, much of the gain is considered ordinary income. Gains from inventory, publicly traded securities, and depreciation recapture are not eligible for installment reporting. And if you offer seller financing, you should know that if the total value of installment payments exceeds $5 million in a year, interest is charged on deferred taxes.

You never know when the change of Congress (more Democrats) and possible change of Presidency and expiring tax code. Your capital gain rate may rise from 15% to 25%. Remember you may save 10%.

http://www.finance.cch.com/text/c60s10d459.asp

"The advantage of capital gains, as opposed to ordinary income, is that the basic maximum tax rate on capital gains for property held for more than one year is currently 15 percent through the end of 2010. In contrast, the top four ordinary income tax rates are all higher than this, with the top rate through 2010 at 35 percent"