Choice of Entity - Know What You Are?
I was reading an interesting article about taxation of personal goodwill today. This article, coupled with a couple of recent experiences, reminded me how frequently I run into the situation where business owners aren’t clear on what type business entity they are and/or how that entity is taxed. The article was discussing the double tax ramifications of asset sales when the entity is a C Corp. Because C Corps are taxed separately from their owners, sometimes taxes are paid twice on the same income. As the article discusses, in an asset sale “[w]hen a buyer pays an owner of a C corporation directly for personal goodwill, that portion of the purchase price is taxed once as a capital gain to the owner (not twice, as it is when the purchased asset is not considered personal goodwill).”Whether your business is a sole proprietorship, corporation, partnership or LLC, as a business owner you should make a thoughtful decision as to which form is in the best interests of your business operation, your tax situation, and your family. Further, when you are preparing to exit you need to understand the ramifications of that decision on potential exit strategies.By starting early and using a qualified team of advisors, the business owner can become educated on the implications of your particular business entity choice and options that may exist. At Hallock & Hallock, we recommend that you always plan with your exit in mind, but work should begin in earnest at least five to ten years before your desired departure time. This will give you sufficient time to consider options and make necessary adjustments.If you are interested in learning more about exit planning the next step is to contact us about receiving your Exit Planning Assessment Questionnaire.