Thoughts on selling or closing down a tax business

[sdarave]

Twelve years ago we purchased an existing tax business with 300 clients. Now we serve 350 clients, but due to our age and health issues we are considering either selling or closing down the business. I would appreciate any thoughts or suggestions anyone might have.....If we close down in three or four years what becomes of our records---etc? All comments welcome!

[TAXNJ]

You might consider consulting with a local Tax Attorney.

[Burke]

You ask for thoughts or suggestions, but there are too few details to advise. For instance, what type of legal business entity is this, sole proprietorship, partnership, corporation, LLC, S-Corp? Are there employees?
Generally, you would keep all of your records (including copies of tax returns) for three years minimum, suggest 4 - 5. There are other retention periods for payroll and 1099's. You will need to continue your E&O for 3 years after closing. Closing is different than selling. If you sell the business, you need to apportion the sale price between fixed assets and goodwill. See form 8824 and instructions. When you bought the business, the amount you paid for goodwill is your basis for that item. Same with any assets like furniture, bldg., etc. etc.

[TaxGuyBill]

I think Burke meant Form 8594.

If you sell ...

• Be sure you get the required disclose statements signed by all of your clients, so you are allowed to 'give' their information to the buyer.
• Would you be willing to be an employee for the new buyer for a couple of tax seasons? That often retains clients better, and you may be able to sell the business at a higher fee.
• You may be required to keep less records/paperwork, as the buyer may take some of that over.

Another thing to consider is if you want to completely retire, or if you just want to cut way down. Some tax professionals work out of their home (including me) and if that is an option you may want to work a couple of days a week during tax season and keep some of your favorite clients for a few more years.

[ATSMAN]

I was at a meeting of tax professionals several years back and an older and wiser man said that we all like to show "less profits" for obvious reasons but this becomes a problem when you want to sell your business. So the suggestion is to look at how you create your P/L few years before selling for valuation purpose. One observation that I had was that 12 years back they purchased 300 clients and 12 years later they have 350 clients a net gain of 50 over 12 years. I understand there is turnover but could the OP please explain this. Did they get rid of almost all the old clients and start new??

[Rapid Robert]

Generally, you would keep all of your records (including copies of tax returns) for three years minimum, suggest 4 - 5. There are other retention periods for payroll and 1099's.

The only time you are required to keep a copy of a tax return you prepared for pay is if you efile it, and then only for the calendar year in which it was efiled. Other than same-calendar-year efile retention, you are not required to keep any records other than a list of the taxpayers and returns you prepared (not the returns themselves), for three years. If you happen to prepare a return including paid preparer due diligence for EITC/CTC/HOH, you might have to keep the documents you said you have a copy of (you don't have to have a copy of those documents, for example you can simply view them). I haven't researched the specific paid preparer due diligence requirement for retention.

The fewer documents you retain, the less your potential liability is, for example a security breach.