One of the most common questions we get asked by business owners is what their tax liability will be when they sell a business in Florida. They want to know how much they will net out of the sale of their business after paying off fees, equipment, and other expenses at closing.
One expense that is often overlooked is the Capital Gains Tax. Many sellers are so eager to sell that they forget about this expense. This is because the Capital Gains is not paid at the time of closing and it doesn’t affect the business transaction until tax time.
Understanding Capital Gains Taxes
When a seller sells a business in Orlando or any other area, Capital Gains taxes are applied to the actual profit made upon the sale of the business and not the equity that was put in to the business. As a very basic example, if a seller spent $50,000 to build their business and sold it for $70,000, it’s possible that Capital Gains taxes may apply to $20,000 of the money received at upon closing. However, depending on how a seller’s accountant can interpret the situation, that may not be the case.
The percentages for Capital Gains taxes can also change. One year the business owner might be at 20 percent and one year they might be at 15 percent. A good way to help sort out what is owed is by putting together an allocation agreement once a business is sold. When the business sells there is typically an allocation agreement that both the buyer and seller should fill out. This form is used to document how much value was placed on each aspect of the business. This is what capital gains will be based on. Other issues such as whether a seller has a C-Corp or an LLC can also affect a seller’s tax situation.
Accounting Advice Is Invaluable When Selling A Business In Florida
Since Capital Gains is a tax issue, sellers need to involve their accountant from the beginning when they determine they want to sell. In many cases this is best done before the business is even put up for sale. Capital Gains taxes are different for every business so there is no way for Crowne Atlantic Properties to provide an accurate estimate without the detailed tax and business information that your accountant already has. We always remind sellers about the Capital Gains tax and recommend they consult their accountant to figure out their capital gains liabilities long before the closing date because it could prevent a deal from moving forward.
For more information about buying or selling a business in Florida, contact Crowne Atlantic Properties at 407-478-4101.