Sale of S-Corp

[peggysioux]

Client is a 100% shareholder of an S-Corp. He is considering selling his business and asked if there was any way to not be taxed on the profits of the sale if he invested the profits into another business. I told my client that he would be taxed on the profit, but to keep the taxes down, it would be better to set the sale up as a stock sale rather than an asset sale. I also advised him to contact an attorney to make sure everything was handled properly.

But, I am curious if there are some avenues that I am unaware of that can be taken that would lower or delay the recognition of tax when S-Corp was sold.

Any input appreciated.

[JoshinNC]

He could transfer the shares to a trust

Client is a 100% shareholder of an S-Corp. He is considering selling his business and asked if there was any way to not be taxed on the profits of the sale if he invested the profits into another business. I told my client that he would be taxed on the profit, but to keep the taxes down, it would be better to set the sale up as a stock sale rather than an asset sale. I also advised him to contact an attorney to make sure everything was handled properly.

But, I am curious if there are some avenues that I am unaware of that can be taken that would lower or delay the recognition of tax when S-Corp was sold.

Any input appreciated.

and then have the trust sell the shares. The trust would recognize no capital gains tax and he could then freely invest the proceeds and live off the trust income. The only stipulation is that he has to name a charity as the remainder beneficiary of the trust.

[Roland Slugg]

Installment sale

Dear peggysioux

Stock sales are often very difficult to arrange, as there are risks for the buyer, and the tax benefit for the buyer is reduced.

An installment sale may significantly defer some of the tax bite, so if that's a possibility, you may wish to suggest it to your client as an option.

[Bees Knees]

I haven't looked closely at the rules, but TTB, page 18-9 talks about rolling over gain tax free on the sale of Section 1045 stock (qualified small business stock) if the taxpayer purchases other qualified small business stock within 60 days that costs at least as much as the stock sold.

Qualified small business stock has to be that of a C corporation, so your S corporation would have to first terminate its S status. Also, it has to be a stock sale, not an asset sale. Buyers usually would rather buy the assets of a business than the stock, due to hidden liability issues.

At least it is an option that you can tell your client about. It will make you look smart, even if the client doesn't want to do it.