It’s a shocking but common statistic for business owners who retire: More than half the sale price of your business could be lost to the IRS when you sell it or pass it down. The scenario can play out in various ways depending on how your business is structured. A retiring C Corp owner, for example, might sell his $1 million of stock in his business and realize too late that his long-term capital gains tax is a staggering $240,000. And then there’s the buyer’s tax bill. Depending on the buyer’s income tax bracket, an added $690,600 might be needed to walk away with that same $1 million in stock. Consider now that this is a family business. All combined, the sale of that $1 million in stock — just to pass it from one generation to the next — costs the business owner and his heir $895,600 in taxes (a “tax rate” of 55 percent).
Passing down your family business