You, as a business owner, carry sway with the people in your purview. You are a leader and people look to you, often genuinely listening to what you say and running with it as a plumb line.
Which is why it isn’t surprising that so many well-known business leaders spoke out about the assassination attempt on former President Trump this past weekend.
Now you might say, “I’m just someone trying to run a business.” But whether or not you ask for the attention of others on your words, it’s going to happen.
You don’t have to take stances about political and cultural moments per se, but in moments that can be truly difficult (like the rally in Pennsylvania), it’s important to be a source of comfort and guidance. Especially to those that are in your most direct sphere of influence: your employees.
Take some time to do a check-in with them about how they are feeling about this weekend’s events. You’ll need to put some parameters on it so things don’t turn into a rant fest, but giving space for your employees to feel and process will make for a better working environment in the weeks to come.
And that also goes for you too. If you need some time to process, find someone who’ll listen. As much as you lead, you also need guidance too.
That’s not just for your emotional well-being but also the aspects of your business that you can’t (or shouldn’t) do on your own… like taxes. It’s why I’m writing to you regularly to help support and guide you in every phase of your Southeastern FL business — beginning to end.
Today, I’d like to offer some tax-informed insight on one of those phases specifically. Let me explain.
As of 2022, sole proprietorships accounted for nearly 74 percent of all new businesses. Which makes sense, considering half of all small businesses start at home.
Nationally, LLC formations are outpacing S corporations, but C corporations still hold strong in finance and energy.
You undoubtedly spent a significant amount of time researching the right business entity for you when starting your biz. But what about when selling a business? How will your business structure impact how you’re taxed on that sale?
That’s the question I want to answer today.
Selling a Business: Tax Considerations for Southeastern FL Owners
“The critical thing is to start with the end in mind. If you want to sell your business one day, you need to start building it to be sellable today.” – Michael Gerber
Selling a business is a big deal, and the tax implications can vary depending on how your business is structured. It really boils down to your business entity (sole proprietor, partnership, LLC, or corporation) and how it dictates how you’re taxed on profits … and, ultimately, on the sale itself.
Keep in mind that the structure of the sale (assets or entire entity) can significantly impact tax implications. (Think asset vs. stock sale.)
But let’s go ahead and look more closely at each type of business structure and how it will be taxed when selling a business:
1. Sole Proprietorship
Sarah is a local bakery owner. As a sole proprietor, her business isn’t a separate legal entity. So the good news for Sarah is that things are simple when it comes to selling. The sale is basically like selling her ovens, mixers, and any other baking supplies. The difference between what she sells them for and what she paid for them determines her capital gains or losses, which she reports on her personal income tax return.
2. Partnership
Now, let’s say that Sarah had teamed up with her friend Maria to form a partnership. Selling their bakery business can go two ways. They could sell all their equipment and ingredients, similar to Sarah’s solo situation. In which case, capital gains and losses are based on the sale price compared to their respective initial investments.
The other option is for Sarah and Maria to sell their ownership stake in the partnership itself. This is treated like selling a personal asset, with each partner reporting capital gains and losses on their own tax returns.
3. Limited Liability Company (LLC)
What if Sarah and Maria decide an LLC would offer some extra protection for their personal assets? The sale options here mirror a partnership.
They can sell the business assets (triggering capital gains and losses based on the difference between the sale price and the cost basis of the assets sold). OR they can sell their ownership interest in the LLC (reported as capital gains/losses on their individual tax returns).
4. Corporations (C Corp and S Corp)
Corporations get a little more complex when selling a business. C corporations are kind of like separate entities from their owners. If Sarah and Maria incorporate as a C corporation and sell the business assets, the corporation itself pays capital gains tax. Then, if they distribute that money to Sarah and Maria as shareholders (owners), they each get taxed again on those dividends. This is called double taxation, which is one of the disadvantages of the C corp structure.
But S corporations have the advantage of avoiding that double taxation. If the bakery qualifies as an S corporation and they sell their assets, any capital gains and losses flow through to Sarah and Maria’s personal tax returns, similar to an LLC or partnership.
Obviously, this is a simplified overview, but hopefully, it helped you understand the differences between each type of entity when selling your Miami Metropolitan business. Of course, the best course of action is to chat with me BEFORE before you start looking for buyers or signing anything. We can delve into the specifics of your situation and make sure you understand the tax implications based on your business structure and the type of sale you’re considering: (786) 693-9358
Looking out for you,
Ralf Heyer