When it comes time to sell your business, you’ll have to consider the intangible asset of goodwill.
Definition: Goodwill is the value of a business in excess of its identifiable tangible and intangible assets. It represents the value of your reputation and customer loyalty.
Goodwill can be worth a lot of money when you sell, but there are tax consequences that you have to be aware of if you want to come out a winner.
No matter how your business is structured, we’ll show you how to play the game when you read my new article titled Tax Tips: Selling a Business: Who Owns the Goodwill? Does the 3.8% NIIT Apply?
Three ways our fact-filled article can help you:
- We’ll show you how to avoid the 3.8% “net investment income tax” (NIIT). If you personally created the goodwill in your business and then decide to sell, you’ll have to pass the “material participation test.” When you do, you won’t have to pay the NIIT. We’ll show you how to come out in good shape when you read the full article.
- We’ll explain Section 1231 of the tax code. If the goodwill has been in place for over a year, it’s considered to be a Section 1231 asset at the time of sale. If you handle things correctly, you can claim a tax-favored, long-term capital gain! All will be explained when you read the full article.
- We’ll provide specific advice for C corporation owners. Do you operate your business as a C corporation and personally own the goodwill? Then you should separate the sale of the goodwill from the sale of either the corporate assets or the corporate stock. You’ll get all the important details when you read the full article.