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CGCPA, CPA
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Am considering selling a small business for $250K virtually

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Am considering selling a small business for $250K virtually all of which would be subject to Capital gains and Indiana sales tax if I understand correctly. (Started the business 6 years ago from a $500 personal investment)
My question is if I would pay off a mortgage I hold on my primary residence of $130,000 would that count off my capital gains for this year? ($250K - $230K = $120K) and allow me to pay capital gains on only the $120K?

The buisness is a small ISP I would be selling no physical assets only the subscription / customer base and the brand name.
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 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.

Unfortunately, retiring the mortgage on your home will not serve to reduce the gain or the tax thereon. Mortgage principal is not taxable when borrowed and, accordingly, is not deductible when repaid.

Customer: replied 3 years ago.

RATS!! I will now have to pay for an answer that I DO NOT WANT! But it is not your fault unless you crafted these cursed tax policies...

 

Before I accept your answer could you give me just a bit of guidiance on what I will expect? My regular income this year will be in the 60K - 80K range married with 3 kids. Just ballpark what will my total tax bill be from a $250K sale (over and above my regular taxes that I am accustom to?

Expert:  CGCPA replied 3 years ago.

Rats is correct. Sadly I do not make the tax laws.

The sale will generate a tax of approximately $37,500 at the Federal level and about 1/3 of that for state taxes.

To help reduce your tax burden you should consider accelerating payment of deductible items such as medical bills, real estate taxes, and of course, the state itself. Paying estimated taxes at the Federal and state levels will help avoid underpayment penalties later and the state payment will be deductible on the Federal return. The Federal form 1040ES is available at the following link www.irs.gov and the state estimated form is available at http://www.in.gov/dor/4439.htm The form is IT-9. You should be aware that if you sell the business you will need to watch the dues dates for the estimated payments. The next payment is due 9/15 and the following one is due 1/15/2012. If you wish to accelerate the state tax deduction you will need to pay it by Dec 31st.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3742
Experience: over 40 years experience in tax matters
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