Alternative Minimum Tax Impact From Investing Activities

Income that is earned from investments is a significant factor in the amount of Alternative Minimum Tax an individual pays. Certain types of investment income (dividends, capital gains, certain interest, e.g.) as well as the amount of this income in relation to the taxpayer's other income, all factor into the AMT formula. A taxpayer usually has much more control over investment income than he does his salary, for example, making this source of income much more important from an Alternative Minimum Tax planning point of view. In general, an investment portfolio can be changed any time a taxpayer finds it advantageous to do so.

Discussed below are a few key items associated with investing activities, and the AMT planning opportunities that may exist.

Dividends and capital gains

Most dividends on common stocks are "qualifying," and, thus, are eligible for a lower tax rate than "ordinary income," which consists of things such as salaries and wages, interest income, rental income, and the like. Similarly, a capital gain that qualifies as a "long-term" capital gain also is eligible for this lower tax rate. Even though the tax rate on dividends and capital gains is the same for both the Regular Tax and the AMT, the effect on a taxpayer's exemption amount can mean that these items of investment income are the reason a taxpayer is paying the AMT.

Planning strategy - determine the real tax rate being paid on dividends and capital gains. For maximum returns, investors should always consider after-tax yield when evaluating investment alternatives.

Tax-exempt bond interest

In general, municipal bond interest is exempt from Federal tax. However, certain muni bonds are designated "private activity" bonds, depending on how the proceeds of the bond issuance are used. Interest from private activity bonds continues to be exempt for the Regular Tax, but it is fully taxable for the AMT, with the result that the after-tax yield is significantly less than what the taxpayer originally thought he was earning. Note that, in order to boost yields, certain muni bond funds may allocate a portion of their portfolios to private activity bonds.

Planning strategy - Again, a taxpayer always should be considering after-tax yield in evaluating investments. An AMT payer generally should not be holding private activity bonds. If the investment is in mutual fund form, there are plenty of muni bond funds available that do not invest in private activity bonds.

Partnerships and other "pass-through" investments

In many cases partnerships themselves will have AMT items, but since a partnership "passes through" these items, it is the individual partner who ends up paying the AMT. For example, a real estate partnership may use a depreciation method that is allowable for the Regular Tax but is not allowable for the AMT. This difference in depreciation methods is an AMT item that will be reported to the partner on the Form K-1 he receives from the partnership, which, in turn, must be reported on the partner's own AMT schedule, the Form 6251.

Note that this same pass-through treatment results in the case of S corporations, LLCs, and certain estates and trusts.

Planning strategy - Before investing in a partnership, an individual should inquire about AMT items that the partnership may generate. Once invested, it generally is too late to do anything about them.

Conclusion

While the old maxim that taxes should not determine an investment strategy is true, nevertheless an investor who is stuck in the AMT may be earning a significantly lower after-tax yield on his investments than he realizes. Remember that it is only after-tax income that an investor actually gets to keep; ignoring taxes, especially the AMT, is unwise.

Purchase Or Sale of an LLC's Member's Interest

THE SELLER
In general, the sale by a member of a limited liability company ("LLC") interest is treated as the sale of an asset separate and distinct from the underlying assets owned by the LLC. Gain or loss is recognized based upon the difference between the amount received for the LLC interest and the tax basis in the LLC interest. A member's tax basis in his or her LLC interest is equal to the amount of cash the member contributes to the LLC, the basis the member had in any property contributed, and the member's share of the LLC's debt. A member's tax basis is increased by the member's share of LLC income or gains and any additional contributions the member makes to the LLC. A member's tax basis is decreased by any cash distributions the member receives, by the basis of property distributed to the member, and by net losses the member deducts. This gain or loss is considered gain or loss from the sale or exchange of a capital asset except if the gain is attributable to "unrealized receivables and inventory." The determination of whether the capital gain or loss would be treated as long-term capital gains (held for more than one year and subject to a 15% tax rate) or short term capital gains (held for shorter than a year and subject to ordinary income tax rates) will depend on the selling member's holding period. In general, the holding period would begin when the member acquires an interest in the LLC.

THE PURCHASER
The purchase of a member's interest in an LLC is treated as the purchase of an LLC interest separate and distinct from the purchase of the underlying assets of the LLC.

The purchase of an LLC interest requires that the buyer allocate the entire purchase price to the purchase of the interest. The tax basis of the purchasing member's interest is determined under the basis provisions of the Internal Revenue Code and will be generally be the cost of the interest. The purchase, however, does not affect the tax basis of the assets already owned by the LLC.  Thus, the purchasing member may be required to recognize a gain if there are appreciated assets owned by the LLC which are sold after the buyer becomes a member.

There is a provision in the Internal Revenue Code, Section 754, that allows the purchaser to adjust the proportionate share of the tax basis of the assets owned by the LLC  so that purchasing member can adjust his or her basis of the LLC assets to reflect the purchase price paid for the LLC interest. The basis adjustment affects only the purchasing member and not the other members of the LLC. The Internal Revenue Code Section 754 election is an elective provision.

REMAINING MEMBERS
The sale by one of the members may or may not affect the remaining members. The sale by a member can affect the LLC and the remaining members if the sale causes the LLC to terminate. If 50% or more of the total interest in the LLC's capital and profits are sold or exchanged, the LLC will be deemed to be terminated for tax purposes only. If the LLC is not terminated, the remaining members are not affected for tax purposes by the sale of an LLC interest.

Disclaimer: The information provided herein is not legal advice, but a general overview and should not be construed as legal advice.

2010 Tax Year

2010 was a crazy, tumultuous for tax law complete with a white knuckle final law that passed at the last-minute. For a super-nerdy accountant guy like me this was more drama then Super Bowl and the finale of my wife's favorite soap opera combined. Now that the dust has settled, and you're doing end-of-year tax planning or preparing to file 2010 tax numbers, the question is "Tyler, what really changed with all these laws and how does it affect me as an entrepreneur." Great question, let's investigate.

Basically, there were three big tax acts in 2010: the HIRE Act, the Patient Protection and Affordable Care Act, and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The last of these, we'll call it the Tax Relief Act, basically kept in place all of the so-called Bush Tax Cuts through 2012. The second, we'll call it Patient Protection, will primarily promise higher taxes for some taxpayers in future years, and the first, the HIRE Act has some sweet short-term discounts to encourage hiring.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 in brief

This act was passed primarily to continue most of the tax cuts put in place during the Bush Administration until 2012, an election year.

Income Tax Rates - 2009 individual income tax rates will be continued for 2010 and through 2012 for all taxpayers.
Capital Gains Tax Rates - 2009 rates on capital gains and qualified dividends will be extended through 2012.
Payroll rebate - 2% Social Security rebate for employees - The employee's share of Social Security taxes will reduce from 6.2% of wages to 4.2% for 2011. Self-employment tax will decrease to 10.4%. The best part of the deal is that social security benefits will not be affected by discount, although, at some point in time some taxpayers will have to foot the bill for it.
What employers have to do - employers "must implement the new rules as soon as possible but no later than January 31," in the words of the IRS. If you don't catch this by the first payroll then you can make an adjustment to the second to compensate.
What employees have to do - absolutely nothing. It is your employer's responsibility to comply.
AMT Patch - the exemption amount for the Alternative Minimum Tax is increased to $47,450 for individuals, $72,450 for married taxpayers filing a return jointly and $36,225 for married but filing separately couples.
Estate Tax - Among the biggest dramas of 2010 has been whether George Steinbrenner's heirs would inherit his estate without owing any estate tax ("death tax" to you tea party types). Well, thanks to this bill I can confidently tell you maybe, but probably not. For 2010 estate managers will have the option of selecting the new regime of a $5 million dollar exclusion with a 35% rate thereafter or of opting under the system that would have a 0% rate but would have denied the "step-up" in basis that inheritors have received under the previous rules. It gets complicated and few of my readers are passing on >$5 million estates in 2010 (unless you plan on dying tomorrow).
Bonus Depreciation - what's sexier than 50% bonus depreciation? Try 100% bonus depreciation! For select fixed assets placed in service from September 9, 2010 through the end of 2011, 100% of the purchase price of the asset may be depreciated in the year of purchase. For the entrepreneurs with smaller businesses this is important because you can take bonus depreciation even in a loss situation whereas Section 179 cannot put you into a loss. Also, bonus depreciation could be advantageous with the purchase of a vehicle used for business purposes.

HIRE Act

The HIRE Act was only in effect for 2010 and provided employers with an incentive to hire previously unemployed persons by giving them a 100% reduction on the employer portion of the payroll tax of the qualified hiree. Furthermore, if the employee remained hired for 52 consecutive weeks then the employer could be eligible for a credit of up to $1,000 per employee. While it is too late to hire a new employee if you hired someone eligible for the credit don't forget to apply for the $1,000 credit when they hit 52 weeks!

Tax Planning in 2011

The oldest trick in the book for tax planning is for cash-basis (as opposed to accrual basis) taxpayers, like most of you, to accelerate expenses into the current year through a number of tactics, including accelerated depreciation (like Section 179 or the 100% bonus depreciation available in 2011) or through the purchase of goods and services in the current year that won't be needed or utilized until the subsequent year. Alternatively, the taxpayer could delay the receipt of revenue by not sending out billings until the subsequent year. This is the "kick the can down the road" strategy for taxes; the income will eventually have to be recognized (nerdy accountant speak for saying that taxes will be owed on it) but we would rather that day came later instead of sooner. Well, the problem with this strategy comes in times of increasing taxes, such as we are likely to enter soon. All of the above mentioned laws that provide or extend tax benefits are temporary measures that will expire in 2012, an election year. Most of the political junkies who follow these things would guess that taxes will have to rise in order to keep pace with the gigantic debt the United States is ratcheting up. If this is the case then in 2011 you could actually find yourself in the position of wanting to prepay your taxes by accelerating revenue or deferring expenses.

An additional tax bill that has already been passed into law, as part of the Patient Protection and Affordable Care Act, and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, will tack on an additional 0.9% Medicare tax for married filing joint taxpayers earning greater than $250,000 and for single taxpayers earning greater than $200,000 for the 2013 tax year by 0.9%. In addition, those same taxpayers will be charged a 3.8% Medicare tax on earnings on investments; which were previously not subject to employment taxes.

In conclusion, 2010 was a year of great uncertainty and apprehension regarding taxes for the productive class. In the end, most tax hikes and any tax reform was pushed further down the road; leaving us with something rather like 2009. Certain tax hikes are already in the books, albeit not taking effect until further down the road, and taxpayers can expect additional uncertainty in 2012 when the current tax rates expire.

0% Long-term Capital Gains Rates? To Good to Be True?

Time is running out for the 2008 0% long-term capital gains rate. As a taxpayer your taxable income will need to remain below the 15% tax bracket (under ~$31,000 for single and ~$61,000 for married filing joint) and you need to have long-term (one year and one day or longer) gains before the end year.

The three primary challenges to be rewarded with the zero percent (0%) rate will be to actually have gains in stock positions, not have your gains be offset by prior year carried forward capital losses and to recognize the gain before Congress changes the law. A lot of gains over the past year(s) have now been erased with the declining asset prices (i.e. stock market, etc.) in additional with the lack of savings by Americans may make finding the assets to sell to trigger the gains challenging. The current financial bailout Congress is digesting may result in changes to the tax code which will be focused on increasing tax revenues.

The continued government deficit spending will more than likely result in future increases in long-term capital gains tax rates and income come tax rates. It may be best to trigger your long-term capital gains before any tax law change to ensure you remain in the 15% or under tax rate.

Remember, you can control the capital gains and losses you trigger by selling your stock. You should plan using the finalized tax rates and determine if triggering the gains are in your best interest.

Since tax planning can be more complicated than it sounds you should contract your tax advisor if you have any specific questions.

HUF and Tax Implications

Hindu Undivided Family is defined as consisting of a common ancestor and all his lineal male descendants together with their wives and unmarried daughters. Therefore, a HUF consists of all males & females in the family. Daughters born in the family are its members till their marriage and women married into the family are also members of the HUF.

In this context, "Hindu" mean all the persons who are Hindus by religion. Section 2 of the Hindu Succession Act, 1956, elaborately declares that it applies to any person, who is a Hindu by religion and it includes a Virashaiva, a Lingayat or a follower of Brahmo, Prathana or Arya Samaj, a Buddist, Jain or Sikh. In CWT In the case of Smt. Champa Kumari Singh (1972) 83 ITR 720, Supreme Court held that the HUF includes Jain Undivided Family. HUF is a separate entity for taxation under the provisions of sec. 2(31) of the I. T. Act. It means that the one person can be assessed as an individual and also as a Karta / Chief of his family.

HUF Formation - An HUF is automatically constituted with the marriage of a person. No formal action is required to create an HUF. The HUF being the result of birth, possession of joint property is only an appendage of the HUF and is not necessary for its constitution. So, one person cannot form an HUF. Family is a group of people related by blood or marriage. However, the property held by a single co-parcener does not lose its character of Joint Family property solely for the reason that there is no other male or female member at a particular point of time. Once the co-parcener marries, an HUF comes into existence as he alongwith his wife constitutes a Joint Hindu Family. This was held in the case of Prem Kumar v. CIT, 121 ITR 347 (All.)

It can be noted that, the technical status of an HUF continues even in the hands of females after the death of sole male member. Even after the death of the sole male member, the original property of the HUF remains in the hands of the widows of the members of the family and the same need not divided amongst them.

An HUF need not consist of two male members- even one male member is enough. The understanding that there must be at least two male members to form an HUF as a taxable entity is not applicable. - Gauli Buddanna v. CIT, 60 ITR 347 (SC); C. Krishna Prasad v. CIT 97 ITR 493 (SC) and Surjit Lal Chhabda v. CIT, 101 ITR 776 (SC). A father and his unmarried daughters can also form an HUF. CIT v. Harshavadan Mangladas, 194 ITR 136 (Guj.)

Nucleus of HUF - With several rulings it is now established that, nucleus or ancestral joint family property is not required for the existence of the HUF.

Karta - He is the person who manages the affairs of the family. Generally, the senior most male member of the family acts as Karta. However, any other male member can also act as Karta with the consent of the other member. Narendrakumar J. Modi v. Seth Govindram Sugar Mills 57 ITR 510 (SC).

Property - The HUF property may consist of ancestral property, property allotted on partition, property acquired with the aid of joint family property, separate property of a co-parcener blended with or thrown into a common family pool. The provisions of sec. 64 (2) of the Income Tax Act, 1961 have superseded the principles of Hindu Law, in a case where a co-parcener impresses his property with the character of joint family property.

Female members cannot merge her separate property with joint family property, but she can make a gift of it to the HUF. Pushpadevi v. CIT 109 ITR 730 (SC). Female members can also bequeath their property to the HUF, CIT v. G.D. Mukim, 118 ITR 930 (P & H).

Multiple Family Structures - An HUF can consist of several branches or sub-branches. For example, a person with his wife and sons constitutes an HUF. If the sons have wives and children, they also constitute smaller HUFs. If the grandsons also have wives and children, then they also constitute HUFs. It is irrelevant whether the smaller HUFs hold any property. Nucleus property can be acquired by partition of bigger HUF or by gifts from any member of the family or even by a stranger or by will with intention of the donor or the testator that the said gift or bequest will form the HUF property of the donee. An HUF can be composed of a large number of branch families, each of the branch itself being an HUF and so also the sub-branches of more branches. CIT v. M.M.Khanna 49 ITR 232 (Bom).

Tax planning through HUF -
(i) Increase the number of assessable units through the device of partition of the HUF.
(ii) Create separate taxable units of HUF through will in favour of HUF or gift to HUF.
(iii) Enter into family settlement / arrangement.
(iv) Payment of remuneration to the Karta and also to other members.
(v) Providing loans to the members of the HUF.
(vi) Gift to members.

Partition of HUF - The tax liability can be reduced by partition of the HUF. This can be easily done in a case where the partition results in separate independent taxable units. Suppose an HUF consists of father and two sons and there are two business establishments, a house property and other sources of income with the HUF. If the members of the HUF have no other sources of income then partition of the HUF can be done by giving one business establishment to each of the sons, house property to the father and dividing the other sources in such a manner so as to make the partition equitable. Such a partition of HUF will reduce the tax liability considerably. The position may, however, be different in a case where the members of the HUF have got high individual incomes. In such a case it is not advisable to break or partition the HUF. The HUF should be allowed to continue as a separate taxable unit.

In case, where the HUF has only one business establishment, which can not be physically divided, it may be converted into a partnership firm or a company. At present, rate of firm's tax and the rate of tax in case of a company, is 30% flat, therefore conversion of HUF business into a partnership or a company is not advantageous. The incidence of, in such a case, can be better reduced by payment of remuneration to the members of the HUF. Partial partition of HUF is also a very effective device for reducing its tax liability. Partial partition is recognized under the Hindu Law. However partial partition of an HUF is no more recognised by the Income Tax Act. The provisions of sec. 171 partial partitions can still be used as a device for tax planning in certain cases. An HUF not hitherto assessed as undivided family can still be subjected to partial partition because it is recognized under the Hindu Law and such partial partition does not require recognition u/s. 171 of the Income Tax Act, 1961. Thus a bigger HUF already assessed as such, can be partitioned into smaller HUFs and such smaller HUFs may further be partitioned partially before being assessed as HUFs. Besides any HUF not yet assessed to tax can be partitioned partially and thereafter assessed to tax.

Legal aspects and partition of HUF -
(i) Assets distribution in the course of partition would not attract any capital gains tax.
(ii) No gift tax liability.
(iii) No clubbing of incomes u/s. 64.

Create Separate Taxable Units - It is now well settled law that there can be a gift or will for the benefit of a Joint Hindu Family.It is immaterial whether the giver is male or female, whether he or she is a member of the family or an outsider. What matters is the intention of the donor that the property given is for the benefit of the family as a whole. Suppose there is an HUF consisting of Karta, his wife, his two sons, daughter-in-law and grand children. A gift or will can be made for the benefit of the two smaller HUFs of the sons. The bigger HUF will continue as a separate taxable unit even after the death of the Karta. There may also be a case where the father or mother has self acquired properties. They have a son and his family but there is no ancestral property as a corpus of their family. Then, father & mother or both can leave their property for the benefit of their son's family, through their respective wills.

Family Settlement / Arrangement - Family settlements / arrangements are also effective devices for the distribution of ancestral property. The object of the family settlement should be broadly to settle existing or future disputes regarding property, amongst the members of the family. The consideration for a family settlement is the expectation that such settlement will result in establishing or ensuring amity and goodwill amongst the members of the family. Since family arrangement does not involve transfer, it would not attract gift tax, capital gains tax or clubbing. By a family arrangement tax incidence is considerably reduced or it may even be nil. Suppose a family consists of Karta, his wife, two sons and their wives and children and its income is Rs. 6, 00,000/-. The tax burden on the family will be quite heavy. If by family arrangement, income yielding property is settled on the Karta, his wife, his two sons and two daughter-in-law, then the income of each one of them would be Rs.100,000/- which would attract no tax & if the assessment year is 2007-08, then the tax liability would be reduced form Rs. 100,000/- to nil.

Remuneration to the Karta & members - The other important measure of tax planning for an HUF is to pay remuneration to the Karta and its members for the services rendered by them to the family business. The remuneration so paid would be allowed as a deduction from the income of the HUF and thereby tax liability of the HUF would be reduced, provided the remuneration is reasonable. The payment must be for service to the family for commercial or business expediency. Jitmal Bhuramal v. CIT 44 ITR 887(SC).

Loan to the Members - If the business, capital or investment of the HUF is expanding then such expansion can be done in the individual names of the members of HUF by giving loans to the members from the HUF. The HUF may or may not charge interest on the loans given. Where after partition of an HUF, two members became partners in three firms on behalf of their respective HUFs and they also became partners in a fourth firm, the funds were obtained by means of loans from other three firms, the share incomes of the members from the fourth firm was assessable as their individual income only. CIT v. Champaklal Dalsukhbhai, 81 ITR 293 (Bom.).

Gift of Assets to Members - Generally, the Karta of an HUF cannot gift or alienate HUF property but he can make certain gifts to the female members. Gift of immovable property within reasonable limits, can also be made by a Karta to his wife, daughter, daughter-in-law or even to a son out of natural love and affection. Gift of immovable property within reasonable limits can be made only for dutiful purpose e.g. marriage of a daughter etc.

If the HUF has surplus funds or property, then, the Karta can make gift of movable assets to his wife, daughter or daughter-in-law at one go or over a period of time. However, it may be noted that with effect from 1.10.98, the applicability of Gift Tax is no more in force. Therefore, no Gift Tax will be payable by a person making the gift from on or after 1.10.98. However, w.e.f. 1.10.2004 Gift received from other than relatives exceeds Rs.25,000/- then that amount is liable to Income Tax u/s. 57. It may be remembered that gift for marriage or maintenance of daughter is not liable to Gift Tax. Further clubbing provisions of sec. 64 would not be applicable if the gift in validly made in accordance with the rules of Hindu Law. Besides, if a gift made to the minor daughter of the Karta is valid then the provisions of sec. 60 of the Income Tax Act would not be attracted. CIT v. G. N. Rao, 173 ITR 593 (AP). Whereby, section 60 relates to transfer of income where there is no transfer of assets.

Other Tax Planning -
(i) Transfer of individual property to the family.
(ii) Family reunion after partition.
(iii) Inheritance by succession

Partnership Firm & HUF - An HUF cannot become a partner in a firm. The Karta or a member of the HUF can represent the HUF in a firm. A female member can also represent HUF in a partnership firm, CIT v. Banaik Industries 119 ITR 282 (Pat.). Where remuneration was received by a member of HUF from a firm, where he was partner on behalf of HUF for managing firms business such remuneration was his individual income, CIT v. G. V. Dhakappa 72 ITR 192 (SC); Premnath v. CIT 78 ITR 319 (SC). However, income received by a member of HUF from a firm or company is taxable as the income of the HUF, if it is earned detriment to or with the aid of family funds, otherwise it is taxable as the separate income of the member, P.N. Krishna v. CIT 73 ITR 539 (SC). Members of HUF can constitute Partnership without affecting a partition or without disturbing the status of joint family. Ratanchand Darbarilal v. CIT 15 ITR 720 (SC). However, on viewing at the present rate of firm's tax, conversion of HUF business into partnership is not advantageous.

Selling Your Business - Deal Structure and Taxes

The purpose of this article is to demonstrate the importance of the tax impact in the sale of your business. As an M&A intermediary and member of the IBBA, International Business Brokers Association, we recognize our responsibility to recommend that our clients use attorneys and tax accountants for independent advice on transactions.

As a general rule, buyers of businesses have already completed several transactions. They have a process and are surrounded by a team of experienced mergers and acquisitions professionals. Sellers on the other hand, sell a business only one time. Their "team" consists of their outside counsel who does general business law and their accountant who does their books and tax filings. It is important to note that the seller's team may have little or no experience in a business sale transaction.

Another general rule is that a deal structure that favors a buyer from the tax perspective normally is detrimental to the seller's tax situation and vice versa. For example, in allocating the purchase price in an asset sale, the buyer wants the fastest write-off possible. From a tax standpoint he would want to allocate as much of the transaction value to a consulting contract for the seller and equipment with a short depreciation period.

A consulting contract is taxed to the seller as earned income, generally the highest possible tax rate. The difference between the depreciated tax basis of equipment and the amount of the purchase price allocated is taxed to the seller at the seller's ordinary income tax rate. This is generally the second highest tax rate (no FICA due on this vs. earned income). The seller would prefer to have more of the purchase price allocated to goodwill, personal goodwill, and going concern value.

The seller would be taxed at the more favorable individual capital gains rates for gains in these categories. An individual that was in the 40% income tax bracket would pay capital gains at a 20% rate. Note: an asset sale of a business will normally put a seller into the highest income tax bracket.

The buyer's write-off period for goodwill, personal goodwill, and going concern value is fifteen years. This is far less desirable than the one or two years of expense "write-off" for a consulting agreement.

Another very important issue for tax purposes is whether the sale is a stock sale or an asset sale. Buyers generally prefer asset sales and sellers generally prefer stock sales. In an asset sale the buyer gets to take a step-up in basis for machinery and equipment. Let's say that the seller's depreciated value for the machinery and equipment were $600,000. FMV and purchase price allocation were $1.25 million.

Under a stock sale the buyer inherits the historical depreciation structure for write-off. In an asset sale the buyer establishes the $1.25 million (stepped up value) as his basis for depreciation and gets the advantage of bigger write-offs for tax purposes.

The seller prefers a stock sale because the entire gain is taxed at the more favorable long-term capital gains rate. For an asset sale a portion of the gains will be taxed at the less favorable income tax rates. In the example above, the seller's tax liability for the machinery and equipment gain in an asset sale would be 40% of the $625,000 gain or $250,000. In a stock sale the tax liability for the same gain associated with the machinery and equipment is 20% of $625,000, or $125,000.

The form of the seller's organization, for example C Corp, S Corp, or LLC are important to consider in a business sale. In a C Corp vs. an S Corp and LLC, the gains are subject to double taxation. In a C Corp sale the gain from the sale of assets is taxed at the corporate income tax rate. The remaining proceeds are distributed to the shareholders and the difference between the liquidation proceeds and the stockholder stock basis are taxed at the individual's long-term capital gains rate.

The gains have been taxed twice reducing the individual's after-tax proceeds. An S Corp or LLC sale results in gains being taxed only once using the tax profile of the individual stockholder.

Selling your business - tax consideration checklist:

1. Get good tax and legal counsel when you establish the initial form of your business - C Corp, S Corp, or LLC etc.

2. If you establish a C Corp, retain ownership of all appreciating assets outside of the corporation (land and buildings, patents, trademarks, franchise rights). Note: in a C Corp sale, there are no long-term capital gains tax rates only income tax rates. Long-term capital gains can only offset long-term capital losses. Personal assets sales can have favorable long-term capital gains treatment and you avoid double taxation for these assets with big gains.

3. Look first at the economics of the sales transaction and secondly at the tax structure.

4. Make sure your professional support team has deal making experience.

5. Before you take your business to the market, work with your professionals to understand your tax characteristics and how various deal structures will impact the after-tax sale proceeds

6. Before you complete your sales transaction work with a financial planning or tax planning professional to determine if there are strategies you can employ to defer or eliminate the payment of taxes.

7. Recognize that as a general rule your desire to "cash out" and receive all proceeds from your sale immediately will increase your tax liability.

8. Get your professionals involved early and keep them involved in analyzing various bids to determine your best offer.

Again, the purpose of this article was not to offer you tax advice (which I am not qualified to do). It was to alert you to the huge potential impact that the deal structure and taxes can have on the economics of your sales transaction and the importance of involving the right legal and tax professionals.

Why the Tax Gains Calculator is Good For the Professional Landlord

On the subject of capital gains tax calculations it is a very tedious task for the up to date or professional landlord. The method of this calculation is very difficult and if it is not done in the correct way then the results will be devastating in terms of cost. But to some extent the technology and the modern world of business there has been a specialist's software to help with this issue of property management.

The right thing for the professional landlord to use is a capital gains tax calculator, because this would put the landlord on top of his game in terms of deciding certain moves from there in terms of property and taxes. The property gains tax calculator is one of great importance to the landlord as this software allows him to quickly make certain difficult calculations in mere seconds. This particular program mentioned is high in standards and can deal with current and even previous calculations of tax years.

The real purpose of the tax gains calculator is that it helps the individual to really assess what it is he needs to deal with and also taxes and liabilities plus it give any landlord an option and certain tips to deal with his situation as everyone is different. There are a number of ways for the information to be provided, as this information is very vital no matter which one of the programs you are using. The landlord also needs to know all the critical figures on the summary of liability and then they should know all of that particular information and everything else.