I have an interested buyer willing to pay cash for my business. They want to own the IP of the business (which is all the business actually owns).
The business is an S corp and I have owned the stock in that business for over 1 year.
If I sell the stock, can that be considered a long term capital gain? Which option should I choose?
Asset Sale of IP
Selling the IP if you created it will cause you to be hit with personal income tax with a top rate of 35% for the full amount of the IP, since self-created IP has a basis of zero.
Stock Sale of the S Corp
Selling the stock of the S Corp will be less because: 1) Your basis may be higher in the S Corporation shares because you had to put cash in to buy them and you may have put other cash in to fund the business, which also increases the basis in the stock and 2) The sale of S Corporation shares may be eligible for long term capital gains treatment, which is 15%
Note: This is not legal advice and should not be construed as such, and does not create an attorney client relationship.
Generally sellers like to sell stock and buyers like to buy assets (in part to avoid liabilities of the company that can come along with the stock).
Regardless of the method of sale, there may be tax elections that you can make to get the tax treatment of the other method.
You need to pay for the services of two people:
And these should not be H&R Block or Cousin Johnny. These need to be good at what they do and specialized. I'm sure if you posted on here or Hacker News your location you could get referrals to good people in your area.
Are you asking if selling assets vs selling stocks, will there be any tax benefit at the end of the year? If you are selling a business you are giving away everything related to your business. So the question is what is the legal format you should sell your business?
If this, then definitely talk to a CPA.
You should also consider the tax implications for the buyer in an asset sale vs. a stock purchase.
Specifically, a buyer may have an opportunity trigger a 338(h)(10) election while purchasing your stock, which can allow an basis step up. If it is a material transaction, you might be able to 'price in' some of the buyers benefit into your transaction.
Here are 2 discussions on 338(h)(10) elections: