[a cu men]
n. keenness and depth of perception, discernment or discrimination, especially in practical matters.
Allocation of Proceeds in an Asset Sale
INTRO
When the owner of a funeral home sells his/her business, most often his/her chief concern centers on the selling price. While this is certainly one of the biggest elements for any owner to consider upon a sale, there are lesser known metrics that, notwithstanding the sales price, can have a significant impact on the amount of that sales price that the Seller actually gets to keep. We think that’s an important distinction.
In an Asset Sale, how the sales price is allocated to the assets being sold is not to be overlooked as a critical piece of good planning on the part of the Seller.
GOOD TAX COUNSEL
Because different tax rates apply to the sale of different types of business assets, it is prudent to seek good tax counsel. Sellers should seriously consider obtaining a reasonably reliable professional overview of their overall tax obligation prior to signing a Purchase Agreement.
DIFFERENT CATEGORIES = DIFFERENT TAX RATES
When business assets are sold, they are categorized for the purposes of determining tax implications for the Seller – and establishing the new cost basis of those assets for the Buyer. For the Seller, each category is subject to tax (the tax rates vary by category) on any differences between the net book value of those assets and the amount allocated to that category in the sale. Categories generally include:
ALLOCATION MATTERS
Your tax counsel will assist in determining the net book value of the company’s assets from corporate books. After the assets have been valued according to appraisal or other accepted means of valuation, the sales price will be assigned – or allocated – accordingly among the different categories. The allocation breakdown, approved by Seller and Buyer, is then included as a part of the Purchase Agreement.
The implications: For the Seller, this Allocation will be used to determine the taxes owed upon the sale of the business. For the Buyer, the Allocation establishes the new Tax Basis for the assets which they will own when the transaction is complete.
BE INTENTIONAL, BE INFORMED
Because the Allocation poses significant implications for both Seller and Buyer, this element deserves good and intentional consideration. Engaging the assistance of qualified tax professionals for a Comprehensive Tax Analysis early in the process will provide the best road map for the Seller. The more you know in advance regarding the tax implications of a sale, the better and more informed decisions you can make when deciding to sell your business.
Tax and financial matters aside, when it comes to the actual process of selling your business, professional guidance is also valuable. SCI has unparalleled experience as an acquirer of funeral homes and cemeteries. If you have questions about the sales process, in general, please give us a call for a completely confidential conversation.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.Until recently, interest rates have been at historically low levels . While rates still remain comparatively low, they have been increasing.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition.
When the owner of a funeral home sells his/her business, most often his/her chief concern centers on the selling price. While this is certainly one of the biggest elements for any owner to consider upon a sale, there are lesser known metrics that, notwithstanding the sales price, can have a significant impact on the amount of that sales price that the Seller actually gets to keep. We think that’s an important distinction.
In an Asset Sale, how the sales price is allocated to the assets being sold is not to be overlooked as a critical piece of good planning on the part of the Seller.
GOOD TAX COUNSEL
Because different tax rates apply to the sale of different types of business assets, it is prudent to seek good tax counsel. Sellers should seriously consider obtaining a reasonably reliable professional overview of their overall tax obligation prior to signing a Purchase Agreement.
DIFFERENT CATEGORIES = DIFFERENT TAX RATES
When business assets are sold, they are categorized for the purposes of determining tax implications for the Seller – and establishing the new cost basis of those assets for the Buyer. For the Seller, each category is subject to tax (the tax rates vary by category) on any differences between the net book value of those assets and the amount allocated to that category in the sale. Categories generally include:
- Real Estate
- Furniture, Fixtures & Eqpt
- Accounts Receivable
- Inventory
- Automobiles
- Goodwill
ALLOCATION MATTERS
Your tax counsel will assist in determining the net book value of the company’s assets from corporate books. After the assets have been valued according to appraisal or other accepted means of valuation, the sales price will be assigned – or allocated – accordingly among the different categories. The allocation breakdown, approved by Seller and Buyer, is then included as a part of the Purchase Agreement.
The implications: For the Seller, this Allocation will be used to determine the taxes owed upon the sale of the business. For the Buyer, the Allocation establishes the new Tax Basis for the assets which they will own when the transaction is complete.
BE INTENTIONAL, BE INFORMED
Because the Allocation poses significant implications for both Seller and Buyer, this element deserves good and intentional consideration. Engaging the assistance of qualified tax professionals for a Comprehensive Tax Analysis early in the process will provide the best road map for the Seller. The more you know in advance regarding the tax implications of a sale, the better and more informed decisions you can make when deciding to sell your business.
Tax and financial matters aside, when it comes to the actual process of selling your business, professional guidance is also valuable. SCI has unparalleled experience as an acquirer of funeral homes and cemeteries. If you have questions about the sales process, in general, please give us a call for a completely confidential conversation.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.Until recently, interest rates have been at historically low levels . While rates still remain comparatively low, they have been increasing.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition.
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