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Can you tell me what type of structure your business is set up as? sole proprietorship, partnership, LLC, corporation?
If you are set up as an S Corporation, then the income from that business is not taxed at the entity level, but rather at the shareholder level, and each shareholder receives a K-1 form at the end of each year reporting his or her share of the income. The same will hold true on the sale of the company. Any gain or loss from the sale of the business, whether it be classified as ordinary income or long term capital gains, will filter down to each shareholder and be reported on the K-1 form, which the shareholder then files as part of his personal income tax return at the end of the year.
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Hello again zellman,
I am assuming that the machinery you are selling has been held by your S Corporation for more than one year. To determine the taxable amount, you would take the sales price less your adjusted basis. The adjusted basis will be the original price you paid for the machinery plus the cost of any substantial improvements, less any depreciation taken on the machinery. The difference between the sales price and your adjusted basis will be the amount that is taxable, and will be divided equally among the shareholders and reported on their K-1 forms. Each shareholder in turn will pay capital gains tax on their portion of the gain, and the capital gains tax rate is currently capped at 15%.
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