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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15212
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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What is the best way to structure a small business sale of

Resolved Question:

What is the best way to structure a small business sale of accounts receivable for
an LLC to minimize taxes when the purchase price is to be paid from cash flow?
Submitted: 1 year ago.
Category: Finance
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Thank you for your question, and thanks for using JustAnswer.com. How are you today?

MyVirtualCPA :

The sale of accounts receivable by a cash basis taxpayer is fully taxable in the year of the sale.

MyVirtualCPA :

Unfortunately, there is no way to avoid the ordinary income on the receipt of that cash.

MyVirtualCPA :

The purchasing company will then have basis equal to the full value of the receivables, and will not recognize income unless they receive more than the value of the receivables.

Customer:

Does this mean the seller who receives the income from cash flow to pay off business for the Buyer/

MyVirtualCPA :

I'm not sure I understand your follow up question

Customer:

Does this mean the seller pays taxes on cash received from the buyer who is paying for the business?

MyVirtualCPA :

That is correct, if they are a cash basis taxpayer

MyVirtualCPA :

If they are an accrual basis taxpayer then there is no income because the revenue has already been taxed

Customer:

the buyer agrees to pay for business consisting of accounts receivable and is paying the seller from cash flow who pays the tax/ the seller?

MyVirtualCPA :

yes, the seller pays tax

MyVirtualCPA :

the buyer has no tax on the transaction

Customer:

they are a cash basis buyer. I want to make sure the cash flow is taxed and not the purchase price

MyVirtualCPA :

For a cash basis taxpayer, the cash received is taxed. So, if there are other installments the income would be recognized when the cash is actually received

Customer:

so the seller is taxed on cash received for the business and not the entire purchase price before it is received?

Customer:

any way to print this?

MyVirtualCPA :

Yes, use your browser's print function in order to print this chat.

MyVirtualCPA :

Or copy/paste into a Word document

MyVirtualCPA :

The cash basis taxpayer is taxed on income actually received, yes

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15212
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 5 other Finance Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Megan C replied 1 year ago.
Thanks, Gene for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.

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