Courtesy of Guest Blogger, Stanley J. Bushner, Shareholder
Buckno Lisicky & Company CPA's
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When you buy a business, after you have agreed on the purchase price and have the necessary financing in place, you want to get the maximum tax benefit.
The buyer has two choices, the first choice is to buy the stock (assuming the selling business is a C or S corporation) and the second choice is to buy the business assets. A buyer in almost all cases should buy the assets. When allocating the purchase price the buyer will want to apportion most of costs to assets that can be depreciated the fastest. This is especially true, since Sec. 179 an accelerated method of depreciation is available in 2014 for all personal property new or used up to $500,000 (not yet passed into law for 2015).
If you purchase the sellers corporate stock, you can only continue the existing depreciation and therefore will not reap any tax benefits of the purchase price until you sell the company. Before you or your accountant gets too aggressive with allocation of the purchase price, the Internal Revenue Service has Form 8594, which must be completed by both the buyer and seller and be identical. Both parties must include Form 8594 in their respective tax returns in the year of sale.
The most important factor in buying the seller’s assets versus the purchase of stock is that the buyer will not be subject to all contingent liabilities of the seller, which is not the case if stock is purchased. Do you as a buyer; really want to be responsible for seller’s liabilities?
A business attorney and accountant should be part of your team when buying a business and be consulted before you sign any documents.