?? about selling my place....

Hi every one, I’ve been following this board for YEARS. I have had other member names, but I haven’t posted in so long that I forgot what they were, much less the password.

My question is this: Suppose I bought 50% interest of a pizza place for say…100K. Years later we sell the restaurant for say…300k. Does anybody know what I will be taxed on? I bought my half for 100k, my half of the selling price is 150K. Do I get taxed on the 50K profit? Or is there some weird formula that I don’t know about.

Any ideas? I know some in here have sold restaurants before. P.S… I don’t plan on reinvesting in another place, if that has any impact.

There are many factors at play here. I would have a long talk with a tax attorney to help you keep as much as possible. Good luck.

Did you buy 50% of the stock of the corporation or 50% of sole proprietorship or partnership or what? Are you selling the stock or the assets?

The amount of depreciation/amortization taken on assets over the years will be a factor. For example, if, over the years you benefitted from 50% of 40K in these items, your gain would be 70K. (the 50K increase in value plus the amounts of tax benefits already taken)

Other items that could change the picture are how the purchase price is assigned in the contract. For example: any portion of the purchase price that is paid as a consulting contract for training of a new owner will be taxed as earned income and will reduce the gain. In some cases a non-compete is treated the same way.

Talk to your CPA.

You might want to have the place appraised first. 300k might be well over priced. Not knowing any details, that might be speaking too soon, but knowing the market, there aren’t many shops that are worth near that much.

I certainly beg to differ. There are many many stores that earn a solid 6 figure income for their owners and many of them are worth 300K or quite a bit more. At 150K discreationary cash flow 300K is a bargain. A lot of higher volume stores earn that much.

I would say that an asking price of 300K for a business that has clean books, a solid block of time left to run on the lease and has a multi-year history of over 100K earnings is a very realstic place to start.

Thank you Bodega! You were the one person I was hoping would reply. I’m going to PM you.

For everyone else, in my original post you will notice I said “for example”. These are not actual numbers. Not trying to brag, but we run a tight ship here…and we can pay our bills. The offers we have been receiving reflect that :smiley:

I newer said you were over pricing the sale! I will stand by the talk to the tax man though. You might pay your bills and Steve does deal as a commercial broker, but in the end, there are too many factors not to consult someone first hand and with actual working knowledge of your operation. It does not matter if you are selling for $5 or $5 million… you still need accurate advice not guesses in the wind. Saving a few dollars looking for advice here is not going to be worth the dollars it will cost you in the end. All respect for Steve, but I would be surprised if he did not tell you too seek first hand advice also.

Yes, Mike. And in fact I did. It was the last thing on my first post in the thread “Talk to your CPA”

A couple of general thoughts cross my mind that do not pertain this transaction but are things that any of us should keep in mind if/when the time comes that we are looking to sell an enterprise like many of us have:

  1. The best time to sell is when you have a buyer. What does that mean? Don’t let a live one get away. The best interest in a business opportunity listing occurs early. Do not let a strong buyer walk away from a deal over what amounts to a few percentage points of the deal whether that difference is in price or small items in the contract. (I lost a deal over inventory valuation and an equipment repair allowance… the buyer was being advised by an attorney who was looking for ways to sweeten the deal. The items were idiotic, but I lost the sale and right about then 2008 happened… lesson learned!)

  2. Yes, there are ways to influence the tax impacts of a sale… but do not fall in love with complexity. Also, most ways to reduce the tax consequences for the seller increase them for the buyer… The IRS has this pretty well figured out! In any case most of the choices made that impact this were made years before in how the business was structured and how income was reported. Look for balance and fairness in the deal. Again, the amount of change is typically small and not something you want to loose a deal over.

  3. Flipside for #2: You might want to consider ways to improve the tax picture for the buyer rather than focus only on the picture for the seller. You may find that agreement to terms that accelerate the depreciation/amortization for the buyer or which create expensible items over capitalized items are the last little things that close the deal. Even if they COST you 5K rather than save you 5K wouldn’t you rather have the deal? (See #1)

Sorry Mike, I didn’t mean to come off that way! Ofcourse I’m going to talk to our CPA this week and figure things out. It was the weekend and my CPA couldn’t be reached, thought someone might have had a similar experience.

Thanks fellas!

It’s all good…I am in a tough love mood! :stuck_out_tongue: Steve, very well spoken as usual. Having been involved in a few business transactions over the years the points you make are needed to be heard by many. As a seller or buyer, you really need to step back sometimes and give and take a little. The big picture of the day is that you are either buying or selling something that is more than a few dollars here or there and it does need to be structured to benefit all parties…otherwise someone will walk. The point of the buyer at hand… don’t lose the sale over the small stuff…is so true. Many a deals disolve over items that should takes a quick conversation to resolve but end up killing the sale. It will cost you a lot more in the long run of things.

Now if you will entertain my $5 offer… I will even pay for dinner at the closing! :wink:

Hey Mike,

Gonna have to pass on the offer for the business, but as a consolation, I will buy dinner… if you come to Steamboat Springs to get it!

It’s a deal Steve… but only if I can play with the band! 8)

Oh, and I hope I am remembering correct about the band thing???

Mike, what do you play?

I am a drummer by trade. WOW…this thread now has disaster writen all over it! :shock:

Daddio…we’re getting the band back together! 8)

Heck, I might even go to Vegas if we could have a band called the “Tankers”