Tax theoretical

[BillR]

Okay, so yeah - I know - I need to hire a CPA. And I will....but in the meantime I need to get a rough idea of a few things and calculating taxes is NOT my best suit.

Let's say I am married with 1 kid - my wife is not employed (If I said she didn't work I'd be a dead man - we have a toddler....). I make $80K/year in salary.

I may make about $240,000 in K1 income this year as well.

If I sell my business for $1,000,000 - how is that taxed? Assume I have some basis in the company. Do I just pay capital gains on this money? Or how does that work exactly?

[Evan]

$320,000 Adjusted Gross Income
$ 10,900 Standard Deduction for Married Filing Jointly (2008)
---------
$309,100 Taxable Income

You'd get a slight reduction, potentially, in taxable income from your phased out dependency deduction. I also assume that you itemize your deductions, which would yield a lower taxable income.

But based on the information above, you'd be estimated to pay about $88,000 in taxes (and in the 33% tax bracket).

With selling your business, how exactly are you planning to sell it? Are you selling them the shares of your S-Corp, or are they just buying the assets?

[BillR]

With selling your business, how exactly are you planning to sell it? Are you selling them the shares of your S-Corp, or are they just buying the assets?

More than likely selling the shares - but if a liquidation and sale of assets was a better approach I am all ears!

We have few real assets besides cash.

[Evan]

Most people would rather buy the assets and have you dissolve the corporation, and instead forming their own. If they purchase the shares of stock, they're also taking the "ugly" as well, which could be any liabilities you have (on or off the balance sheet).

If they did decide to buy the company, you'd need to determine your basis in the corporation. It'd be a long-term capital gain taxed at 15%. The hardest part will be determining your basis, and there are several elections you could make which could make that number more favorable for you. Sitting down with a tax professional is best for this, as you can provide them with a better picture of your business.

Otherwise, if he decides just to purchase the assets, you'd treat it as an ordinary sale of your assets [1120S Schedule D]. Everything would end up being liquidated to cash, which you could then distribute to the shareholders.

[BillR]

Our basis is well defined. We have had a CPA audit our books yearly since the beginning and we know that number every month.

What I am most interested in is the % of taxes I'd pay on the sale of the stock or assets.

[Evan]

It'd be considered a long-term capital gain one way or the other, it's just how the numbers are applied. The tax rate is 15% :-)

[OldJack]

Remember that instead of selling the S-corp with all that cash you probably can take the cash out as tax-free distributions, then sell the corp or assets. Check it out with your CPA.