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Gain On The Sale Of A Business

Business Law discussions

Gain On The Sale Of A Business

Postby Iseul » Sat Nov 12, 2016 1:29 am

s About Taxes)/Gain on The Sale of a Business Advertisement Expert: Richard Fritzler - 6/4/2008 We have made a land and asset purchase of 14 million dollars.  The business that operates on the land is a gasoline station.  We are selling the business(blue Sky) for 1.4 million dollars.  The blue Sky is paid upfront but amortized over 5 years.  Do we have to recognize the full 1.4 million for capital gains year one?  Is it capital gains or ordinary income?  Thanks for your help.  Shale

ANSWER: By "we" do you mean a: corporation, LLC, Partnership or an Individual?

The 1.4 would not be ordinary income, it would be a gain. This makes no difference on the tax rate paid by a corporation, corporations enjoy a low tax rate on total income regardless earned, passive, or gain.

For an individual, it would only matter if the gain were "long term" from your explanation I assume it is not long term, so you would be paying short term gain rates, which are the same as your personal income rates.

You received a large enough portion of the sale of the property to require that all the taxes be paid upfront.

Richard Fritzler

www.owelesstax.com

www.nevadacorporateservices.com

phone 800 590-6612

---------- FOLLOW-UP ----------

It is a LLC and we will get a K 1 at the end of the year.  Personal tax rate?
Iseul
 
Posts: 45
Joined: Fri Mar 07, 2014 9:28 am

Gain On The Sale Of A Business

Postby achimelech51 » Sat Nov 12, 2016 6:02 pm

Tax rates very so much depending on whether your are married, single, filing jointly or filing separately, dependents, head of household, etc. But what the hell, I help you figure it out.

Here is a simplified table of tax rates.

2008 Tax Rates

Below are the marginal tax rates for 2008. Tax rates progressively increase as income increases. The tax rates apply only to the income in each tax bracket range. Also, the tax rates apply only to taxable income. Various adjustments and deductions, including the standard deduction and personal exemptions, all lower your taxable income. Taxable income is almost always less than your total income.

Capital gains are may taxed at different tax rates. Capital gains tax rates are calculated separately.

Note: These tax rate schedules are provided for tax planning purposes. To compute your actual income tax, please see the 2008 instructions for Form 1040, 1040A, or 1040EZ as appropriate. Single Filing Status

(Tax Rate Schedule X)

10% on income between $0 and $8,025 15% on the income between $8,025 and $32,550; plus $802.50 25% on the income between $32,550 and $78,850; plus $4,481.25 28% on the income between $78,850 and $164,550; plus $16,056.25 33% on the income between $164,550 and $357,700; plus $40,052.25 35% on the income over $357,700; plus $103,791.75 Married Filing Jointly or Qualifying Widow(er) Filing Status

(Tax Rate Schedule Y-1)

10% on the income between $0 and $16,050 15% on the income between $16,050 and $65,100; plus $1,605.00 25% on the income between $65,100 and $131,450; plus $8,962.50 28% on the income between $131,450 and $200,300; plus $25,550.00 33% on the income between $200,300 and $357,700; plus $44,828.00 35% on the income over $357,700; plus $96,770.00 Married Filing Separately Filing Status

(Tax Rate Schedule Y-2)

10% on the income between $0 and $8,025 15% on the income between $8,025 and $32,550; plus $802.50 25% on the income between $32,550 and $65,725; plus $4,481.25 28% on the income between $65,725 and $100,150; plus $12,775.00 33% on the income between $100,150 and $178,850; plus $22,414.00 35% on the income over $178,850; plus $48,385.00 Head of Household Filing Status

(Tax Rate Schedule Z)

10% on the income between $0 and $11,450

15% on the income between $11,450 and $43,650; plus $1,145.00 25% on the income between $43,650 and $112,650; plus $5,975.00 28% on the income between $112,650 and $182,400; plus $23,225.00 33% on the income between $182,400 and $357,700; plus $42,755.00 35% on the income over $357,700; plus $100,604.00

So if you are "single" you'd be in the 35% tax rate on most of this transaction. If you are married then you'd be in the 35% tax rate on most of this transaction. If you are head of Household you'd be . . . Oh my gosh, you'd be in the 35% tax rate on most of this transaction.

But let's not stop there, since you have this much income you will also experience "Phase out" of your personal deductions, meaning, no standard deduction, no home mortgage deduction, no itemized deductions, etc. the only thing you'd still be able to deduct is 20% of your dependents.

AND, since this is business income you will also be subject to the AMT(Alternative Minimum Tax) which should negate most of your business deductions.

If you only get 1/3 of the money and the rest is given to unrelated parties, then your tax burden will be a little less, but in every category you are still pushing the 35% tax bracket and Phase out and AMT.

Again this does not factor in any state tax rate, if you are in California add 9.3%, but do it soon, California is trying to apply a higher tax rate. The first simplest advice would be to "do any/every business as all of the most successful businesses do. Do your business as a Real Corporation."

I know that is the polar opposite of the advice that you got from your Neighbor, Accountant, brother-in-law, Attorney, or town drunk.

If you want me to line item explain why your Neighbor, Accountant, brother-in-law, Attorney, or town drunk gave you that advice and contrast the actual tax savings, I can.

And if you are looking to, within the rules, reduce your tax burden further, I can give you some options. Not a 1031 exchange. a 1031 would be almost impossible to implement, and I assume you did not want to run a gas station or similar that is why you are selling it.

Give me a call.

Richard Fritzler

www.owelesstax.com

www.nevadacorporateservices.com

phone 800 590-6612  
achimelech51
 
Posts: 56
Joined: Fri Apr 01, 2011 8:02 am

Gain On The Sale Of A Business

Postby colfre12 » Mon Nov 21, 2016 2:15 pm

s About Taxes)/Gain on The Sale of a Business Advertisement Expert: Richard Fritzler - 6/4/2008 We have made a land and asset purchase of 14 million dollars.  The business that operates on the land is a gasoline station.  We are selling the business(blue Sky) for 1.4 million dollars.  The blue Sky is paid upfront but amortized over 5 years.  Do we have to recognize the full 1.4 million for capital gains year one?  Is it capital gains or ordinary income?  Thanks for your help.  Shale

ANSWER: By "we" do you mean a: corporation, LLC, Partnership or an Individual?

The 1.4 would not be ordinary income, it would be a gain. This makes no difference on the tax rate paid by a corporation, corporations enjoy a low tax rate on total income regardless earned, passive, or gain.

For an individual, it would only matter if the gain were "long term" from your explanation I assume it is not long term, so you would be paying short term gain rates, which are the same as your personal income rates.

You received a large enough portion of the sale of the property to require that all the taxes be paid upfront.

Richard Fritzler

www.owelesstax.com

www.nevadacorporateservices.com

phone 800 590-6612

---------- FOLLOW-UP ----------

It is a LLC and we will get a K 1 at the end of the year.  Personal tax rate?
colfre12
 
Posts: 39
Joined: Wed May 22, 2013 3:51 pm


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