So, you've decided to sell your business. Congratulations! This is a huge accomplishment and a very exciting time. But don't forget to factor in how much taxes you'll have to pay on the sale. Unfortunately, goodwill doesn't fall under the "excluded property" category, so it will be taxed along with the company's other assets.

But don't worry. There are ways to reduce your tax burden. Keep reading to learn more!

What's Goodwill?

Goodwill is an intangible business asset that arises when one company purchases another and the purchased company's value exceeds the fair market value of its individual assets and liabilities.

In other words, it's the amount by which the buyer believes the company being acquired is worth more than the sum total of its individual parts. Although goodwill is often associated with big business mergers and acquisitions, it can also arise in other business transactions, such as when a small business is sold or when one business buys another business's assets.

Goodwill can also be created internally, such as when a business develops a new product or service.

How is Goodwill Taxed When Selling a Business

Are you thinking about selling your business? If so, you may be wondering how much tax you'll have to pay on the sale. Good news: the answer is "it depends."

However, one thing you should know is that you may have to pay taxes on the goodwill associated with your business.

It takes into account things like reputation, customer base, and location. So, if you're selling your business for more than the value of its tangible assets, you may have to pay taxes on the difference.

Fortunately, there are business tax services that can help you figure out exactly how much you'll owe. So, before you put your business up for sale, be sure to consult a tax professional to get an accurate estimate of what you'll owe.

Tax Burden Reduction Tips

When it comes time to sell your business, you want to get the best possible price for it. But you also don't want to get hit with a huge tax bill. Fortunately, there are a few things you can do to reduce the tax burden when selling a business.

First, you can sell the business's goodwill separately from the rest of the assets. Goodwill is the value of the reputation and goodwill the business has built over time. It's not something that is typically taxed, so by selling it separately, you can avoid paying taxes on it.

Second, you can sell your business to a family member or someone in a lower tax bracket than you. This will help to reduce the amount of taxes you have to pay on the sale.

Finally, you can donate a portion of the sale proceeds to charity. This can help to offset some of the taxes you would otherwise have to pay.

By taking these steps, you can help to reduce the tax burden when selling your business. And that means more money in your pocket!