Striking a Deal: Tax Considerations
Sellers have two options, says Miehls. They can sell the shares of their company and have that same business carry on with a new shareholder, or you can decide to sell the business to another company who will then close the business and bring the assets into their own, existing company. First time sellers have an added advantage, as the first $500,000 of their capital gains are tax-free. This is known as a lifetime capital gains exemption for qualified small business corporations.
Buyers should look to buy assets, not shares. If you buy assets you can depreciate them from the price you paid when you bought them, says Miehls. However, if you buy shares and continue to run the business as a new shareholder, all of the assets are valued at their historical cost and you are only able to depreciate the assets at those historical costs as opposed to what that same inventory and equipment would cost today. If the fair market value is higher, you can begin to depreciate the assets at this higher value right away.
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