When to Sell Your Business

April 7, 2011  |  

(New York Times) — As with most economic news of late, there are mixed signals right now in the business-for-sale marketplace. Some folks say now is great time to sell — or, at a minimum that the market is better than it has been over the last two years — while others disagree. Where can a business owner turn to get clear direction? Since the dartboard has been used famously for picking publicly traded stocks, let’s ask the Magic 8 Ball a few questions about selling a small business.

Question No.1: Should I sell before 2013?  The Bush-era tax cuts have been extended, and this includes keeping the current capital gains rate at 15 percent until the end of 2012. A large portion of the sale price of a small business can fall into the asset category known as good will. In an asset-sale scenario, sellers typically want as much of the sale price as possible to be classified as goodwill because the Internal Revenue Service will tax it at the capital gains rate — which is usually much lower than the seller’s income tax rate. If a deal is structured as a stock sale, then the entire transaction would be taxed at the capital gains rate applicable for the year of the sale.

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