Are There Ways To Minimize Taxes When Selling A Business?

Posted on: 18 February 2020

Running a successful business and ready to pass the torch over to someone else? If it feels like the right time to sell the business, you can list your selling price and begin talking to interested buyers who would like to take things over and continue to keep the business moving forward for years to come. While this means you can earn millions of dollars, depending on how successful your business has been over the years, you would also have to pay taxes on the sale of the business. If you are selling a business, how to minimize tax may be something you want to consider. If you are concerned about paying too much in taxes, check out some of the best ways for you to minimize the amount of taxes you would owe after making the sale.

Do Not Rush Into Selling Too Quickly

Your business is an asset. If you sell it within a single year, you are expected to pay higher taxes because the income from the sale is taxed in the same way that a person's income is taxed when they work a traditional job or an independent contractor position. What this means is that you could end up spending up to 30 percent of the sale price in taxes alone, which could cause you to take a huge financial hit. However, you have a chance to easily avoid this problem. Instead of rushing into selling too quickly, try to hold off and wait for a little over 12 months to do so. When you wait a bit longer, the money received from the sale of your business is considered a long-term asset, so you are taxed differently. Rather than paying out a whopping 30 percent on the sale price in taxes, you might only have to owe less than 10 percent of the sale price, which means you will save thousands of dollars in taxes.

Make the Sale at Just the Right Time

Most people believe the best time to sell a business is when they are making the most money from it because that is when the buyers are going to want to hand over millions for it. However, it may be better for you to sell when the business is doing well, but not as well as it did in the past. If income from your business is lower than usual, the taxes owed will be significantly lower, too. The person who takes the business over might have some fresh ideas and plans to take get the business back in a great position.

Taxes often must be paid out by those who sell their businesses. If you would like to sell yours but you do not want to pay too much in taxes, trying waiting at least a year and selling when your business income is a bit lower than it was in the past to drastically reduce your tax payments.