If you are considering selling your business or any significant asset, check with me before signing. While there are several reasons to consider doing this, one of the most important is tax liability – you may end up owing more in taxes than you think. In some cases, due to taxes and outstanding debts, you may actually end up with a cash outflow. The adjusted basis of the property and its selling price determine the tax owed – and your basis could be much less than what you expected.
For example: You’re a long-time S corporation, and know you lent the business $50,000 in the early years and had significant profits. But you also took significant distributions that reduced your stock basis and the original loan is fully paid. Moreover, the business has some loans outstanding. By the time you pay the taxes and the loans, there may be little or nothing left. The sale of a building or vehicle can have similar results. Both are subject to depreciation that reduce your basis and increase your gain.
