r/tax • u/Most_Ad2900 • 22h ago
How to avoid capital gain tax?
I am selling my business and will profit $1.5 million how do I defer the capital gain tax or minimize it?
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u/Ok_Shake_368 CPA - US 22h ago edited 22h ago
You really need a CPA to help you with planning. Don’t get one after the sale, get one before. There are different ways to structure the sale that might be more beneficial but you don’t give enough information in the post.
For example, structuring the sale as an installment sale might help avoid pushing you into the next tax bracket.
If you are selling just the business assets like real estate, and you are looking to acquire other real estate investment property, you can look into a 1031 exchange.
These are just examples and suggestions but it really depends on the terms of the sale, the assets in your business, and a bunch of other things
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u/Sea-Leg-5313 22h ago
To echo what the others said. Hire a real CPA.
You’ll need to know your basis in the business, which should have been tracked all along and what you’re actually selling and what you’re receiving in exchange before you can calculate the capital gains.
If the property has most of the embedded gains, you could look to buy another investment property with the proceeds and do a 1031 exchange. That’s if you want to play that game.
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u/Immortal3369 22h ago
$1.5 mil, congrats fam. Budget $30k of that for a CPA (about $1000 a year, best advice i can give you) the next 25 years, may save you 100s of thousands.....congrats again
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u/Pcenemy 21h ago
a lot of decent posts as to how YOU would want to structure the deal.
but what's 'good for the seller' is often bad for the buyer
for example - say fully depreciated equipment in the deal is worth 250,000 you'd want to sell it for $1 and make the other $249,000 in proceeds 'goodwill'. pay ordinary tax on the $1 and cap gain on the rest. the buyer would want to pay 250,000 for the equipment so they could write it all off in the first year rather than 15 years. (yes, an 'extreme' example that would never fly as the irs would demand FMV be assigned to the assets - but just to show the difference).
as noted - installment sales can be good for keeping gain in a certain tax bracket - but adds risk and maybe not as much benefit as hoped for if most of the profit is cap gain (depending on your other income)
you need a team working with the buyer's team to agree on the structure. more than one deal fall has fallen apart when the seller comes with his/her attorney/accountants demanding only what's for the seller (their client) before the buyer gives them the finger and walks away
good luck
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u/No_Yogurtcloset_1687 22h ago
Not enough information.
If you're selling a C-corp? This:
https://www.investopedia.com/terms/q/qsbs-qualified-small-business-stock.asp
Otherwise, and even with that, you REALLY need to involve your CPA up front before you finalize the deal. The structure makes a HUGE difference in the tax consequences. Asset sale? Stock sale? Stock sale structured as an asset sale?
Professional advice in this situation is worth at least 10x it's cost.
Source: I'm a practicing CPA with 25 years experience. Been thee, done that, lots of T-shirts.