How can I reduce my tax liability on proceeds from the sale of a company?

One of the ways to minimize the tax bite on profits from the sale of a business is to structure the deal as an installment sale. If at least one payment is received after the year of the sale, you automatically have an installment sale.

What is goodwill worth when selling a business?

Goodwill is valued by using a multiplier – usually between one and five – against the figure for maintainable profits, before owners’ salaries have been deducted. The multiplier used is subjective, and based on factors such as levels of business growth and profitability in recent years.

Is goodwill valuable when business is sold?

When buying or selling a business, goodwill represents the value of the business that is above and beyond the worth of separately identifiable tangible business assets. Unlike physical assets, like buildings or equipment, goodwill is an intangible asset.

How is goodwill treated for tax purposes?

Any goodwill created in an acquisition structured as an asset sale/338 is tax deductible and amortizable over 15 years along with other intangible assets that fall under IRC section 197. Any goodwill created in an acquisition structured as a stock sale is non tax deductible and non amortizable.

Is business goodwill a capital asset?

Goodwill is an intangible asset, but also a capital asset. The value of goodwill refers to the amount over book value that one company pays when acquiring another. Goodwill is classified as a capital asset because it provides an ongoing revenue generation benefit for a period that extends beyond one year.

Is a goodwill payment taxable?

Even without entrepreneurs’ relief, the rate of tax you pay on a sale of your goodwill to the company is no more than 20%, and this is subject to annual exemptions and other CGT reliefs such as losses.