Business Transactions & Entity Classification
Tax-optimal structuring for buying, selling, and operating businesses
Buying and selling a business is one of the most important events in a business person's life. Financial success depends on the lawyer's and accountant's familiarity with the tax consequences of the transaction.
For the seller, after-tax retained dollars are what matters. For the purchaser, future success depends on net dollars after expenses and taxes. Tax is the center of business sales.
Sale of a Sole Proprietorship
A sole proprietorship is not a separate entity. The sale is treated as a sale of individual assets. Gain or loss is based on the difference between the amount received and the tax basis for each asset. Proper allocation of the purchase price among the assets is critical.
Sale of a Partnership Interest
The sale of a partnership interest is separate from a sale of individual assets. It generally results in capital gain or loss, with an exception for "substantially appreciated" inventory. LLCs are typically treated as partnerships for tax purposes.
Sale of a Corporation
There are three methods to sell a corporation: sell the stock, have the corporation sell its assets, or distribute the assets and then sell. The last two methods may result in double taxation — once at the corporate level and again at the shareholder level. Choosing the right structure is essential.
We provide tax counsel and full representation from contract drafting through closing. Our dual Attorney-CPA perspective ensures that no tax consequence is overlooked.
Typical Business Tax Returns
- Form 1065 — Partnership returns
- Form 1120S — S Corporation returns
- Form 1120 — C Corporation returns
- Form 1040 Schedule C — Sole proprietorship returns
New Entity EIN and Tax Classification
Obtaining an EIN and selecting the proper tax classification is one of the most important steps for a new business. Take time before applying for an EIN — the proper tax classification decision impacts the entire future of your business.
The wrong classification can result in unnecessary taxes, lost deductions, and compliance headaches that are difficult and expensive to fix later.
Get Started
Call (303) 626-7000 or email Phil@ColoradoLegal.com to discuss your business transaction.
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Contact Philip Falco, Attorney & CPA, for expert tax representation in Denver.