When you sell your business, the buyer may insist on a noncompete agreement.
And you can’t really blame them.
They don’t want to buy your business and then discover that you’ve opened a competing business down the street the next day.
But be careful! The noncompete agreement you sign has very real tax consequences for the buyer’s tax bill … and yours.
If you want to negotiate a fair agreement that will do the least damage to your wallet, read my new article titled Tax Tips: Selling Your Business and Including a Noncompete Agreement.
Three ways our fact-filled article can help you:
- We’ll look at things from the seller’s perspective. Whether you’re selling the assets of your business, or an ownership interest, you’ll want to minimize how much of the total sales price you allocate to noncompete payments. This will help you avoid higher-taxed ordinary income that applies to noncompete payments. All will be explained when you read the full article.
- We’ll also look at things from the buyer’s perspective. The buyer may prefer to allocate more of the sales price to noncompete payments if he or she is purchasing the stock of your incorporated business. Why? There are two good reasons which we’ll explain fully when you read the full article.
- You’ll learn why IRS Form 8594 is so important. When you sell the assets of your business, you’ll have to report any allocation of the sales price to noncompete payments on Form 8594. (Both the seller and buyer need to file this form. If you want to avoid an audit, you and the buyer should report the same amount that’s paid under the noncompete agreement. We’ll tell you how to avoid big problems when you read the full article.