Tax Planning for a Business Sale: Factoring in Goodwill - Certified Tax Coach

Share This PostThe term “goodwill” might initially bring to mind donating items to charity or even Christmas carols. However, in the world of tax accounting, goodwill refers to intangible assets that increase a company’s value. This can include things like the company’s brand name, strong customer base, positive customer or employee relations, and proprietary technology. The goodwill value is typically equal to the difference between the purchase price of the company and the sum of the actual assets and liabilities acquired.Tax planners will find that a common obstacle to structuring the sale of a business is the competing interests of the buyer and the seller. From a tax standpoint, what is advantageous for the buyer is often disadvantageous to the seller and vice versa.When it comes to goodwill, this portion of the business value will be treated as capital gain for the seller, rather than ordinary income. Since capital gains are taxed at a lower rate than income, a higher percentage...