USA Stock purchase of a business

[nissansentra]

Hey Guys,

First time here. I am interested in purchasing a business. I need help with how the business will be taxed. I am looking at a stock purchase to lower the sellers tax burden. I am wondering how the seller will calculate his basis in his private company stock when he is calculating his capital gain?

Thanks,

Jordan

 

[Drmdcpa]

You should buy the assets not the stock. The seller's basis is unchanged.

 

[nissansentra]

You should buy the assets not the stock. The seller's basis is unchanged.

I would like to buy the stocks as the seller will pay less in taxes and I will pay less. How would I calculate basis?

 

[nissansentra]

I would like to buy the stocks as the seller will pay less in taxes and I will pay less. How would I calculate basis?

It's a corporate btw

 

[Drmdcpa]

I knew it was a corporation because it was a stock. You have been instructed to not buy the shares rather buy the assets. If you do otherwise that is your choice.

There should be no difference to the seller.

 

[Steve-LevelUp]

I agree. There should be no difference to the seller. If he is trying to convince you to buy the shares, then he might be hiding something. If you buy the shares, then you are buying all liabilities, potential lawsuits and all other manner of problems. You are taking on a much higher risk by buying the shares. It is highly recommended that you buy the assets.

 

[nissansentra]

If I'm not mistaken doesn't an asset purchase double tax? Also the income is treated as personal income and not a capital gain correct? So therefore there is a difference to the seller? Isn't a stock purchase treated as a long term capital gain? If what you guys are saying is true then how is the basis calculated on his end even if it is an asset purchase?

 

[Drmdcpa]

You are mistaken, and I am done.

 

[nissansentra]

You are mistaken, and I am done.

Good you weren't any help anyways. Hopefully someone helpful can comment. Still trying to figure out basis.

 

[nissansentra]

if anyone is curious as to the answer I finally found it. In a stock purchase the basis is assumed from the seller to the buyer for tax purposes. So the taxable amount will be the amount received for the transaction. The capital gains rate would apply to the seller. In an asset purchase they are double taxed on purchase price - fmv and on shareholder proceeds. I attached a very helpful guide.

 

[Drmdcpa]

You should start charging people to provide tax and accounting advice especially since you seem to understand more than at least two seasoned professionals.

 

[nissansentra]

You should start charging people to provide tax and accounting advice especially since you seem to understand more than at least two seasoned professionals.

That's what I do for a living... Never said I know more than you guys. There are many facets that CPAs focus in on and I don't expect them to know every area of the tax law. It seems that you guys don't know about asset vs stock purchase as everything I read online shows that a stock purchase is more advantageous to the seller for the aforementioned reasons I brought up.

 

[Drmdcpa]

You are a super genius for sure.

 

[Steve-LevelUp]

That's what I do for a living... Never said I know more than you guys. There are many facets that CPAs focus in on and I don't expect them to know every area of the tax law. It seems that you guys don't know about asset vs stock purchase as everything I read online shows that a stock purchase is more advantageous to the seller for the aforementioned reasons I brought up.

I do agree that I am not an expert on sales such as this, but I was correct as you state "a stock purchase is more advantageous to the seller" not to the buyer, which was my original point.

 

[Drmdcpa]

I have been involved in many business sales. Never ever is the stock sold. One of the biggest reasons was stated by Steve in a previous post.

The notion that the sale becomes ordinary income to the seller is preposterous except for inventory.