Settling Up Taxes When Selling a Business
When selling a business, the buyer during due diligence may ask amongst other things, licenses, trademark verification, and tax returns on the business.
Nothing construed herein is tax advice which you will want to consult a CPA for such, but this acquisition advice to help you close a deal.
Let’s say it’s February and you didn’t file the most recent tax return yet.
It’s understandable you did not do taxes yet for the prior year if it is due in April, but the buyer may ask you to file.
You obviously have to pay taxes on your business eventually but there are risks paying early if you were not required to, just because you think the deal is going through.
Our recommendation is to always file taxes and pay on tax money that you are late on right away, before you were to sell the business or even entertain a buyer, but anything that you are not late on that the buyer is requesting is not necessarily something you have to file and pay on. To give a buyer who may or may not come through peace of mind is not justified in every situation.
The general rule of thumb, is to file and pay on anything you are late on and everything you are not late on, that’s a trickier scenario that is done by a case by case scenario based on what the post-acquisition scenario looks like.
If a buyer is asking you to settle up taxes in order to close, you do not have to write a check for the full amount of your taxes.
Instead of asking for a larger deposit to do so or to close earlier out of risk of losing rapport, you may just want to file and pay over time on your taxes.
If you are worried that the deal might not go through, you can file and pay over time. Look, you have to pay your taxes any way. You might as well file an extension on anything that you need more time to gather funds or calculations, or you can file on time and pay the money out over time if you just need time to regroup the money.
You can file the return and pay $0 with the return if you want (we always recommend to pay as much as you can upfront) and then spread the payment out with them on their website which you can typically spread out over 72 months.
Everything else the buyer is asking for, either provide or send a detailed explanation as to why you can’t.
Once you sell your business, you will have to file another return that closes out the business, if it is dissolved.
The taxes that will reflect your sale will most likely amount to capital gains which is the difference between the purchase price and sale price, but your CPA will walk you through what happens when you sell the business.
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Jarbly is a leader in acquisitions with expertise in helping with listings, negotiations, LOI's, asset purchases, company purchases, and real estate purchases. JARBLY has access to high net worth individuals if you are on the sell-side and businesses that may be of interest to you if you are on the buy-side.
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