Article Date:
January 2017

Word Count:



Buying a Business: How to Make Tax-Smart Price Allocations

If you buy a business that the owner operated as a sole proprietorship or a single-member LLC treated as a sole proprietorship for tax purposes, your purchase transaction is automatically an asset purchase for tax purposes.


The reason you have an asset purchase is that tax law considers the proprietorship to directly own all the business assets. You are buying the assets directly from the owner.


You can also arrange an asset purchase deal for a business that has been operated as a corporation, a partnership, or a multi-member LLC treated as a partnership for tax purposes. In this scenario, the seller would generally prefer to sell his or her ownership interest rather than the assets, for two reasons:1



Selling an ownership interest generally divorces the seller from any ongoing exposure to business-related liabilities.


The taxable gain from selling an ownership interest that has been held for more than one year is generally treated as a lower-taxed long-term capital gain.


In contrast, you as the buyer will ... Log in to view full article.

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