This story appears in the
March 2001 issue of
Entrepreneur.
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There's good news for entrepreneurs who want to sell their
companies using the installment sale method of accounting. Congress
passed and President Clinton signed legislation that reverses the
consequence of a previous law that unfairly restricted the
method's use.
Under the earlier law, business owners who sold their businesses
were required to pay capital gains taxes on the entire selling
price, even if they hadn't actually received the money from
buyers who were paying off the purchase in installments. Under the
change, sellers will only have to pay taxes on the money for their
business in the year it's actually received.
Before the legislation was passed, people who had counted on
selling their business to finance their retirement, for example,
were left with two tough choices, says Joel B. Goldhirsh, a wealth
management advisor whose Irvine, California-based firm, Goldhirsh
& Goldhirsh, provides financial advice to entrepreneurs, among
others: "They had to either pay the tax in advance of actual
receipt of the entire sales proceeds, or they could look for an
all-cash buyer-at a significantly reduced sales price."
The new law, says Goldhirsh, restores common sense and fairness to
taxation of the business sales that take place every year.
Joan Szabo is a writer in Great Falls, Virginia, who has
reported on tax issues for more than 14 years.