The goal of most business owners is to sell their business upon retiring. There are two ways to sell a business, selling the assets or selling the stock of the business. The way in which you sell your business can make a large impact on your tax liability.
A stock sale is the full sale of the business. The purchaser acquires all assets and liabilities of the entity. All contracts automatically transfer to the new owners, as the entity is still in place. In most instances it is an easier, less complex transaction.
A stock sale is a type of equity sale, but is only available to C-Corporations and S-Corporations. Partnerships can be sold using the equity method, but sole proprietorships are unable to use this method for a sale.
A stock sale is more advantageous to the seller, as the seller will have capital gains on the stock sale. Capital gains is taxed at a lower rate, which can significantly reduce the seller’s tax liability versus an asset sale. However, the buyer is unable to deduct or amortize the purchase price of the business, as the sale price increases their basis in the stock/interest.
Every scenario is different, therefore this general advice cannot be applied directly to your situation and is not intended to be tax advice. If you have concerns about a business sale, it is best practice to consult with a tax professional.