Slash Tax when Buying a Business


When buying a business, how the "purchase price" is made up can affect what you pay in tax. The plan is to make as much of the price tax deductible for you and not the other party.

Once a final price has been agreed upon, try to allocate that price in the sale and purchase agreement in such a way that you get maximum benefit.

Here are some ways to do this:

  • If you are buying allocate as high a value as possible to the assets in the purchase price (plant, equipment, computers, vehicles, fittings, machinery) so you can claim a higher deduction for depreciation of those assets. If you are selling, keep asset values down so you are not taxed for any depreciation recovered (that is, the excess of the amount you have sold the assets for over their book value).
  • If buying value goodwill at the lowest figure possible because it is not tax deductible to you but it does increase the assets allocation. If selling then the higher the goodwill figure the better for you as this lowers the assets figures in the price.
  • If buying, the higher the valuation for stock the better, because you pay tax on the stock profit, which is the difference between stock at the beginning and stock at the end of the period so keep this profit down. If selling, keep stock value as low as possible as they have the opposite effect.
  • If buying and part of the deal includes you taking over the lease, put in a value for "premium on lease" as this premium is tax deductible. If selling, don't include any premiums.
  • If buying and the old owner is staying on, lower the purchase price and increase wages the you'll pay to the former owner because those wages would be fully tax deductible. If selling and you're staying on, increase the purchase price and work for nothing for a period.
  • If buying, leave your repairs and maintenance for a year or two, so you'll have no problems getting a deduction. If you carry out the work immediately on moving in, there is a possibility that the expenses may be "capitalized" and only depreciation can be claimed. If selling, get the repairs done before the sale and increase your price.
  • If buying and you're paying off the balance of the purchase price, reduce the price and raise the interest rate, because interest is fully deductible to you. If you're selling increase the selling price and instead, give the buyer a loan at nil interest.


Copyright 2005 StartRunGrow
http://www.startrungrow.com

StartRunGrow (www.startrungrow.com">http://www.startrungrow.com) is a global online information organization that specializes in creating, developing and marketing business help information specifically with the aim of "making business easier" for entrepreneurs around the world. The StartRunGrow objective is to become a dominant player in the business help arena providing end to end solutions for the millions of small and medium businesses worldwide who continue to struggle daily with the difficulties of starting, running and growing a successful business.


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