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Spread out business sale gains with an installment sale

New Jersey businesses are regulated by a number of state and federal departments and agencies. Like individuals, businesses are taxed at certain rates established by the Internal Revenue Service. When a business is sold for a profit, the IRS requires that the seller report any gains that he or she may have experienced through the sales transaction.

One way that the IRS allows a seller to report the profits of its business sale is through an installment sale. An installment sale occurs when a seller accepts at least one payment for the sale of the business after the close of the tax year in which the business transaction takes place. However, a business does not have to spread its gains out even if it accepts payments after the end of the applicable tax year. It may choose to report all income from the sale during the relevant tax year. If it so elects, it must make such a declaration before its taxes are due.

Businesses that are sold for losses may not and may not even want to utilize this method of tax reporting or accounting. There are other limitations on business sales with respect to the installment sale method; individuals who have questions about the availability of this tax option for their business sales may choose to contact their business law professionals.

The sale of a business can result in the seller paying heavy taxes on the gains it experiences through the business transaction. There are, however, different ways that business sellers may approach their taxation requirements to minimize their burdens. The installment sale process is just one manner in which a business sale may be handled. Readers may discuss their options with business and taxation professionals to determine the best type of sale for their businesses.

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