It shouldn’t shock you to learn that when you sell a business, you will have to pay taxes on the sale. However, the amount of taxes you will pay can vary depending upon the expertise and advice of a knowledgeable accountant and business broker. While there are many nuances to each sale, here is a brief summary to help sellers understand the general tax implications of selling an online business.
There are two types of business sales; asset sales and stock sales. Most transactions are structured as asset sales.
Asset Sale: With an asset sale, the buyer acquires the business’ assets, rather than the corporation or entity. This is the preferred route for buyers as they are only acquiring the assets but no prior or potential future liabilities.
Stock Sale: With a stock sale, the buyer will purchase the legal entity of the business, which includes all its assets and liabilities. While the purchase agreement signed by both parties will typically indemnify the buyer from any known or unknown legal or tax liabilities which occurred prior to the sale, the buyer is still liable for such damages and must then litigate against the seller.
Obviously, an asset sale is a much cleaner process and usually the only time that our transactions are structured as stock sales are when there are licensing agreements tied into the entity which are not transferable or assignable.
When the asset purchase agreement is finalized, there is an accompanying asset allocation which will list all the assets of the transaction, with monetary amounts assigned to each category.
For instance, in an online business sale, the allocation might be divided into the following categories: fixed assets, intangible assets, goodwill, and non-compete agreement. The intangible assets and goodwill are taxed as capital gains, which can be anywhere from 15-20%. The other categories would be taxed as ordinary income, which clearly would be at higher rates than capital gains.
The majority of our sales are negotiated to be nearly entirely all intangible/goodwill asset allocated and thus taxed at a significantly lower rate. However, not every website broker is experienced in such matters and understands the complexity of these tax issues. They will likely push this job on your CPA. Our advisors have advanced finance degrees and are properly educated in these matters. Therefore, we are able to favorably negotiate this significant phase of the process for our clients.
As we are only briefly touching on this subject, there are additional extremely beneficial strategies which we discuss with our clients when we list their online business.
If you are considering selling your website business and would like some proper guidance, feel free to give us a call, email or complete an inquiry on our website. We’ll be happy to work with you!