Strategic Tax Considerations for Business Acquisitions
Posted by Cory Van Deusen V on May 20, 2024
In the current climate of increasing mergers and acquisitions, savvy business owners seeking tax-efficient strategies when purchasing a business should consider the benefits of an asset acquisition. This approach requires allocating the purchase price across the acquired assets, setting the stage for future tax deductions through depreciation and amortization.
Key Points for Asset Acquisition
- Tax Basis: Allocate the purchase price to establish the tax basis for each asset.
- Depreciation and Amortization: Utilize the tax basis for calculating deductions on depreciable and amortizable assets.
- Taxable Gain: Be mindful that selling an asset above its tax basis results in a taxable gain.
For Pass-Through Entities
- Personal Tax Reporting: Income and gains from the business are reported on your personal tax return.
- Varied Tax Rates: Different assets and holding periods may affect the applicable tax rates.
For C Corporations
- Corporate Tax Rate: Currently at 21%, all recognized income and gains are taxed uniformly.
Strategic Price Allocation
- Maximize Deductions: Favor allocating more to assets that yield higher ordinary income or can be depreciated quickly.
- Minimize Long-Term Costs: Allocate less to assets with extended depreciation periods or non-depreciable assets like land.
Appraisal Considerations
- Fair Market Values: Obtain appraisals to inform your allocation strategy.
- Negotiation Leverage: Use appraisals to negotiate favorable tax outcomes.
Planning Ahead
- Advisor Involvement: Engage your advisor early to optimize post-acquisition tax implications.
By carefully planning the allocation of the purchase price and involving tax advisors early in the process, business owners can significantly enhance the tax efficiency of their asset acquisitions.
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Cory has over 20 years of experience providing tax and consulting services to commercial businesses and individuals. His expertise lies in the myriad of business development incentives offered by various federal, state, and local agencies to targeted industries such as Manufacturing, Software Development, Technology Companies and many other in order to encourage regional investment, spur job creation, and foster economic growth. The available incentives include refundable tax credits, tax abatements, grants, and forgivable loans. He has extensive knowledge of Start-Up NY, Opportunity Zones, the Excelsior Jobs Program, Qualified Emerging Technology Companies, and various local incentives such as Industrial Development Agency (IDA) benefits. Additionally, he spends his time providing services to Start-Up Companies ranging from a founder with an idea to multi-national tech companies that have raised hundreds of millions of dollars. Cory has experience in all areas of U.S. federal and NY State taxation. He has been with Lumsden McCormick since 2001, was named partner on January 1, 2015. He is a member of the Firm’s Executive Committee and is head of the commercial services group.