SPRING 2011

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176 THE DISTRIBUTOR’S LINK SELLING STOCK VERSUS SELLING ASSETS AND THE TAX MIMINIZATION ANALYSIS continued from page 124 Special Considerations for C Corporations C Corporations have special considerations to ponder. Generally C Corporations are taxed twice. As such, any gain made from an asset sale will be taxed at the corporate level. Once it is taxed, any money distributed to the owner as a dividend is then again taxed at the rate of 15% or better. The result is that the owner and company may pay nearly 50% in taxes for gains made in an asset sale. It is best to TIME the sale of the business to close before December 31, 2012. Given the time it takes to sell a business, it is generally best to consider selling soon. Additionally, C Corporations, as mentioned above, do not benefit from preferential tax rates which other entities benefit from. The capital gains of a C Corporation are figured in with the ordinary tax rate of the corporation. This can mean that capital gains generally will result in a tax liability of up to 35% at the corporate level alone. There is also special case law now in existence reducing the double tax/capital gains burden of the C Corporation taxpayer in a business sale. Currently the tax interpretations allow for personal goodwill to be purchased by a buyer separate from the business transaction. Selling the personal goodwill, to the extent justified, allows the seller to escape a layer of tax to the extent of the personal goodwill sold and take advantage of the lower tax rates of an individual at 15%. This is a special, complicated tax issue. Sellers must deal with a specialist, knowledgeable in these types of transactions or else the IRS will disallow the personal goodwill. The Center is qualified and does handle many of these transactions involving the sale of C corporations, Stock Sales Stock sales differ completely from asset sales. A stock sale, in this context, is when a person or entity sells his or her stock to a third party for value. Stock sales tend to be the best tax scenario for a seller because the gain is primarily capital gain taxed at 15% no matter whether stock in a C or S corporation is sold. In a stock sale, the seller will look to his or her basis in the entire company as opposed to each individual asset. Each individual asset’s basis is not adjusted in a stock sale as opposed to an asset sale. As such, because the asset bases are not adjusted, the buyer does not gain a tax advantage and the seller does not suffer a detriment. Stock sales result in a less complicated and less costly tax scenario for the seller as opposed to asset sales. The Tax Minimization Analysis When selling your business, the tax consequences to the buyer are as important as the sale price is to the seller. When you are selling your business, it is extremely important to know what the tax consequences are before even entering negotiations. Once again, Asset sales result in higher taxes for the seller and better benefits for the buyer. Stock sales, on the other hand, result in fewer taxes for the seller, but less tax benefits for the buyer. C Corporations face many more unique tax issues that other corporations and business entities do not. It is extremely beneficial to have a Tax Minimization Analysis done. First of all, the Tax Minimization Analysis shows the tax consequences of an asset sale and a stock sale. From this view, the client gets to see the two extremes. Many are shocked at the effect of one structuring over another has on taxes and consequently cash made from the sale of the business. This is one benefit of the Tax Minimization Analysis. Next, an ideal scenario is worked out to provide the client with a complete picture as to what can be done to minimize taxes and maximize the cash into their hands. This provides the client with the primary benefit of the Tax Minimization Analysis that of knowing a good tax strategy to achieve their goals. When dealing with a buyer, it is critical you know the tax consequences of an asset and stock sale. It is equally important to know how to minimize your taxes right from the get go. Knowing this will give you power in the negotiations right from the word “go”. It is best to TIME the sale of the business to close before December 31, 2012. Given the time it takes to sell a business, it is generally best to consider selling soon. Conclusion Owners of closely held businesses face numerous issues when selling their businesses. Knowing the basic tax ramifications is generally not enough to ensure a good result. Sellers are best advised to not go it alone when selling to maximize the price they get, time the transaction, and achieve minimum tax liability. Bart Basi and the staff at The Center are specialists in tax and frequently prepare the Tax Minimization Analysis. If you are thinking of selling your business or are representing someone selling, be sure to have a Tax Minimization Analysis done by The Center. Contact us at 618-997- 3436 to learn more about saving taxes and getting more money for a seller of a business.
FASTENER TECH ’11, the third staging of the unique concept in fastener industry trade shows, is scheduled to take place in Rosemont (Chicago), IL, USA, June 13-15, 2011. Described as “The All-Fastener-Industry Event in the Heart-of-the-Fastener Industry,” FASTENER TECH ’11 offers attendees and exhibitors a valuable, cost-effective and easy-to-attend event that provides benefits to fastener manufacturers, distributors, users and suppliers. FASTENER TECH is a biennial event. SUR/FIN 2011 is the surface finishing industry’s premier event, and it is a good fit for fastener industry professionals. As a trade event, FASTENER TECH ’11 will be unique on several fronts, including the following: the relatively low-cost and ease-of-exhibiting at and attending THE DISTRIBUTOR’S LINK 177 MID-WEST FASTENER ASSOCIATION FASTENER TECH TM ’11 "The All-Fastener-Industry Event in the Heart-of-the-Fastener Industry" Seminars & Meetings Taking Shape MWFA - P. O. Box 5, Lake Zurich, IL 60047 - Tel: 847.438.8338, 1.800.753.8338 - mwfa@ameritech.net - www.mwfa.net the show, the all-industry focus, the heart-of-the-industry location, and a high level of participation from fastener industry associations and publications. Turn-key exhibit spaces start at $1800. FASTENER TECH ‘11 is being produced by Fastener Technology International magazine, Akron, OH, USA, and the Mid-West Fastener Association (MWFA), Lake Zurich, IL, USA. As was the case for the 2007 and 2009 shows, numerous trade associations and industry publications from around the world and different segments of the fastener industry will be involved in organizing, promoting and executing FASTENER TECH ’11. For more information visit www.mwfa.net or www.fastenertech.com. Still looking to exhibit? Contact Nancy Rich at 847- 438-8338. SUR/FIN, the annual conference and trade show organized by the National Association for Surface Finishing, www.nasfsurfin.com, is co-locating its 2011 event with FASTENER TECH ’11 at the Donald E. Stephens Convention Center in Rosemont. Attendees and exhibitors can attend both exhibitions.
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