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How to sell your business using a “contingent” price

May 1, 2016

When you sell your business, price isn’t the only thing to consider.

You also have to take into account the tax implications of the sale.

The good news is that Uncle Sam will work with you when you and your buyer structure a “contingent sale” — also know as an “earn out” deal.

You’ll get all the details when you read my new article titled Tax Tips: Selling Your Business Using a Contingent Price (Earn-Out) Deal.

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A quick definition: A contingent-payment sale occurs when you sell either (a) the assets of your business or (b) your ownership interest and the total amount, and/or timing of the buyer’s payments, depend on the post-sale financial performance of the acquired business. For example, if the price depends on growth after the sale or on a combination of growth and profits.

The punch line: Under the installment-sales rules, you recognize taxable gains from the sale as you receive payments. This means you don’t owe taxes before you have the cash to pay them!

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Three ways our fact-filled article can help you:

  1. We’ll explain what to do when installment-sales treatment applies to an earn-out deal. The federal income tax regulations cover three different scenarios. Which should apply to your sale? You’ll find out when you read the full article.
  2. You’ll learn when it makes sense to sell your ownership interest. There are two great reasons for selling your ownership interest: The elimination of liability and qualifying for a lower long-term capital gains tax. You’ll get all the facts when you read the full article.
  3. We’ll tell you when it makes sense to sell assets. Whether you’re selling a corporation, partnership, or LLC, sometimes the buyer will push for a sale of your assets. (It helps lower their federal income tax bill.) We’ll show you how to play the game the right way when you read the full article.

Filed Under: Capital Gains, Choice of entity, Corporations, Depreciation, Investments, Tax Planning

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