How To Minimize Your Tax Burden When Selling A Business

When you're in the middle of a business sale, you should always minimize the taxes you pay. This keeps money in your pocket and gives you a greater return on investment (ROI) for the transaction. Minimizing these taxes during a sale requires some savvy, great information, and professional help. Keep reading so that you can do what's best for your company. 

Mull through your stock options

Selling stock in your business as part of the sale is one of the major ways you can reduce your tax obligations. Doing this qualifies your company for the capital gains exemption and helps you cut ties and some liabilities. Figure out strategies for selling stock in your company to interested parties.

Your employees can get in on the sale in the form of an Employee Stock Ownership Plan (ESOP). This is a popular choice for companies looking to unload shares. In the United States, ESOP plans hold assets greater than $1 trillion collectively. There are also several profit-sharing plans that you can explore. 

Sell your company in installments

You can also defer some tax responsibility by choosing to sell your company installments. This option is great because it establishes you as the bank for the buyer. You are required to have held any capital assets you're unloading for at least a year to qualify for an installment sale. After you undergo an installment sale you can offset a lot of the tax responsibility, instead of having to take this hit all at once. When creating an installment agreement, consider setting up an irrevocable trust and other such agreements. 

Work with a business attorney that can help you with negotiations and the transfer of ownership

After you know you'd like to sell your business, start working with a business attorney that can help explore tax strategies. These lawyers specialize in business sale transactions and can negotiate the details on your behalf. The methods of transferring ownership of your business will depend on your business classification. For instance, an S Corp will have different options and obligations than a sole proprietorship, which will require a different strategy than a limited liability company (LLC). 

You'll expect to pay about $150 per hour and up for a business lawyer that can assist you with your business transfer each step of the way. Work with your lawyer through every step of the sale. 

Use these tips when you're looking to lower your tax liability during a business sale. If you're planning on selling a business, how to avoid taxes might be something you're interested in