How does the new tax law benefit business buyers?
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Please remember I'm not an accountant nor have I actually read the tax law, I just searched for news articles about the law.
So far I came up with three things:
- Tax rates are lower.
If you are a buyer, that means that the profit the company has to make in order to provide you with the after tax return you need is lower. That means you should able pay less the get the income you want from a company. Definitely a big win
- Converting to C Corp is 'cheaper'.
Its pretty obscure, but you can spread out certain tax liabilities due to accounting changes over 6 rather than 4 years, and certain previous income can taxed as a pass through longer. Since sometimes buyers need to convert to a C corp for financing purposes, this may benefit them.
- Simplified Accounting.
Business under $25 million in average revenue can use simplified accounting methods. Before, the limit was $5 million in average revenue. If you are running a company this is great, it means less administrative headaches and less money to the accountants. If you are a buying a business on the other hand, if the accounting method is more accurate and precise, it is easier to estimate the value of the business, and it is easier to complete the due diligence process.
Overall this tax law is great for buyers. If I can find out more ways that it specifically changes the buying process I'll try to let you know. If you know of any other ways that this law impacts the buying process, have a comment, or take issue with my analysis, please add a comment below or tweet me at @. I'd love to get your input.