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We are a GA based small food manufacturing company of 30 years. We

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We are a GA based...
We are a GA based small food manufacturing company of 30 years.
We have a buyer, who is offering $1 million for Business Good Will, Intellectual property, accounts payable, accounts receivables and inventories on hand.
We may also be financing $150,000 at 6% interest, with a balloon payment at the end of 5 years- This is part of the 1 million price ( $850,000/- at closing and $150,000, we finance)
The buyer will be leasing the building and plant equipment for 2 years @60,000/ year, 3 rd year optional. We personally own these assets.
I have following questions:
1) What is the best way to structure this deal to minimize our taxes?
2) Would this be considered long term capital gains?
3) Should we form LLC, which would own the building and the plant equipment?
4) Any other suggestions are welcome.
JMankin
Submitted: 1 year ago.Category: Tax
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Answered in 7 minutes by:
5/12/2016
Tax Professional: Lev, Tax Advisor replied 1 year ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,134
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The sale of a business usually is not a sale of one asset.Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade.The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss.The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction.The sale of inventory results in ordinary income or loss.Liabilities assumed by the purchaser is treated as cash payment.Generally, both the purchaser and seller must file Form 8594 and attach it to their income tax returns when there is a transfer of a group of assets that make up a trade or business and the purchaser's basis in such assets is determined wholly by the amount paid for the assets.The gain on self-created intangible - such as goodwill and non compete agreement - is ordinary income.So - we need to start with a list of assets - and will need to assigned a sale price to each asset - as agreed between parties.
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Tax Professional: Lev, Tax Advisor replied 1 year ago
1) What is the best way to structure this deal to minimize our taxes?The "best" for you as a seller would be to allocate the larger portion of the sale price to assets eligible for long term capital gain treatment, for the seller it might be better to allocate to assets with shorter depreciation period.
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Tax Professional: Lev, Tax Advisor replied 1 year ago
2) Would this be considered long term capital gains?For some assets - not all - Business Good Will Intellectual property, accounts payable, accounts receivables and inventories - all these will result ordinary income.I assuming Business Good Will is self-created. But if the Goodwill was previously purchased and amortized - that would be long term capital gain.Intellectual property - if that is related to the patent - it would be long term gain - so we need to be more specific.But if the Intellectual property in general - short term capital gain.You will need to recapture depreciation of equipment - and that will be regular income, but the rest of the gain realized from selling equipment will be long term capital gain.3) Should we form LLC, which would own the building and the plant equipment?That is possible - but not required. There will not be difference in taxation - but might he easy to manage.Please be aware that interest on installment agreement is reported separately and taxed as interest income.4) Any other suggestions are welcome.We may continue discussion after your reply.
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