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Category: Tax
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Experience:  over 40 years experience in tax matters
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When selling a business, does a seller (the only shareholder

Customer Question

When selling a business, does a seller (the only shareholder in this business) get taxed more if he sells all the stock or all the assets?
Submitted: 6 years ago.
Category: Tax
Expert:  CGCPA replied 6 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help


In simple terms it works out about the same either way. Selling the stock in a corporation may be less costly tax wise since it will all be capital gain where in an asset sale some of the assets sold may be taxed as ordinary income. On the other hand selling a corporation may not be as easy as selling its assets because the buyer may wary of obligations not disclosed at the sale which could come back to haunt him/her.

Customer: replied 6 years ago.
If the seller can prove that the current value of his company is significantly higher than the cost in his shares... can he get a tax reduction? What if the assets have a current value in excesss of their cost??
Expert:  CGCPA replied 6 years ago.
If the assets are worth more or less than the selling price has no effect on the calculation of gain. It does, of course, impact the selling price. Gain is based purely on the difference between selling price and basis. Basis is determined by book values at historic cost less depreciation and amortization.
Customer: replied 6 years ago.
What does that mean???
Expert:  CGCPA replied 6 years ago.
It means that the selling price is the starting point to calculate the gain or loss on the sale of a business and that book value (not real world market values) is subtracted from this book value.