Price Allocation When Acquiring a Small Business Can Be Big Deal Lowering Your Tax Burden
Buying or selling a business isn’t just about the sale price — it’s about how that price is divided. This process, called purchase price allocation, can significantly impact taxes for the buyer and seller. For sellers, it can mean capital gains versus ordinary income. For buyers, it affects future deductions. Most small-business sales (especially S Corps) are asset sales, so this step is crucial. Handled well, it protects both sides. Handled poorly, it can be costly. DETERMINING THE FAIR MARKET VALUE OF ACQUIRED BUSINESS ASSETS. In an asset sale, you’re not selling one item — you’re transferring a mix of assets like equipment, inventory, goodwill, and more. Each must be valued as if sold in a fair, independent deal. Cash and inventory values are usually easy to pull from your books, but machinery or IP may differ from what’s listed. Appraisers aren’t required, but can help establish defensible values.
These numbers go on IRS Form 8594, filed by both parties; getting them right upfront can prevent issues later. WHERE ONE PARTY GAINS, THE OTHER OFFSETS. Buyers and sellers often have competing goals in purchase price allocation. Sellers prefer more value on items taxed at capital gains rates, like goodwill, while buyers want faster deductions by allocating more to depreciable assets like equipment. Every dollar shifted benefits one side at the other’s expense, so it’s a strategic negotiation — not hostile, but important. Most deals now include an agreed allocation before closing, making early legal guidance key to ensure both sides align and avoid IRS issues. ACCOUNT FOR DEPRECIATION RECAPTURE IN THE ALLOCATION. Depreciation recapture is one of those tax issues often more nuanced and
complex than business owners are prepared for. It comes into play when a seller has used depreciation to reduce their taxable income over the years through a depreciation deduction. That’s not a problem by itself. The issue shows up if the asset’s fair market value at the time of sale is a lot higher than what’s left on the books. MAKE THE RIGHT CHOICES IN ALLOCATING NEWLY ACQUIRED BUSINESS INTERESTS. How you allocate the purchase price in a business sale can have lasting tax and financial impacts. Missteps here may lead to unexpected taxes or missed deductions. Dahl Law Group helps California business owners structure deals to protect their investment and future income. Contact our Sacramento or San Diego offices for guidance tailored to your transaction.
Grilled Teriyaki Flank Steak Ingredients Marinade • 2/3 cup red wine • 1/2 cup soy sauce or tamari
SUDOKU
• 1/4 tsp black pepper • 1/4 tsp ginger powder • 1/4 tsp red pepper flakes (optional)
• 1/3 cup brown sugar • 1/4 cup sesame oil • 1 tbsp sesame seeds • 1 tsp minced garlic
Meat • 1 1/2 lbs flank steak
Directions 1. In a large bowl, whisk together marinade ingredients. 2. Place the flank steak in a large, rimmed dish. Pour the marinade over the meat. 3. Refrigerate and allow to marinate for 15 minutes. Flip and let marinate for another 15 minutes. 4. Preheat grill to 400 F. 5. Add the meat to the grill and cook for 3–5 minutes on each side. Leave the grill lid open to avoid overcooking. 6. For a medium-rare steak, remove from grill at 130 F internally, and for medium, remove at 140 F. 7. Let the meat rest on a cutting board for 5–10 minutes. Then, slice against the grain into thin pieces and enjoy!
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