Jack Robinson is considering selling his computer consulting business. Discuss the possible tax consequences of the sale fo the business
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Regardless of the legal form of business, there are two tax considerations for all sellers. First is how income is taxed ? as personal income or capital gains. With long-term federal capital gains rates currently hovering around 20 percent and top personal income rates over 30 percent, this can be an important factor. The other consideration is when income is earned (and taxable). There are methods for structuring payments that can help the buyer and seller work out a mutually agreeable payment structure for tax purposes.
If your company is set up as a sole proprietorship or partnership, you'll be selling the company's assets. When sold, these assets must be classified as capital assets ? depreciable property used in the business, real property used in the business, or property held for sale to customers ? which results in capital gain or loss.
Inventory sale results in ordinary income or loss. As it is a consulting business, this portion does not appear to be applicable, unless Jack holds computer parts/ computers) as inventory. All income from the sale of your business will flow through into your personal tax return in a similar fashion as it does now.
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
A business usually has many assets. When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss ...
Tax consequences of the sale a Jack Robinson's consulting business