What are the tax implications of different deal structures?

The tax consequences of selling a business depend on whether the transaction is structured as an asset sale, stock sale or includes earn‑out payments. In an asset sale, buyers purchase specific assets and typically leave liabilities with the seller. Buyers like asset sales because they can select desired assets and receive a “step‑up” in the tax basis, resulting in higher depreciation or amortization deductionshttps://www.hayniecpas.com/asset-sale-vs-stock-sale/#:~:text=In%20an%20asset%20sale%2C%20the,like%20intellectual%20property%20or%20goodwill. Sellers in an asset sale may face ordinary income tax on depreciation recapture for tangible assets and capital gains tax on intangible assetshttps://www.hayniecpas.com/asset-sale-vs-stock-sale/#:~:text=In%20an%20asset%20sale%2C%20the,taxed%20at%20ordinary%20income%20rates. In a stock sale, the buyer acquires shares and assumes both assets and liabilities; sellers usually prefer this structure because proceeds are taxed at capital gains rateshttps://www.hayniecpas.com/asset-sale-vs-stock-sale/#:~:text=In%20a%20stock%20sale%2C%20the,all%20business%20assets%20and%20liabilities. Buyers may avoid unknown liabilities and step‑up limitations by negotiating price adjustments or special electionshttps://www.hayniecpas.com/asset-sale-vs-stock-sale/#:~:text=The%20main%20drawback%20for%20buyers,to%20account%20for%20potential%20risks. Earn‑out payments can be taxed as part of the purchase price (capital gains) or as compensation (ordinary income and payroll taxes) depending on whether they relate to the seller’s ongoing serviceshttps://www.grfcpa.com/resource/tax-considerations-of-earnouts/#:~:text=Depending%20on%20how%20a%20deal,may%20be%20treated%20as%20either. Characterisation affects both the seller’s tax rate and the buyer’s deduction. Hybrid transactions or special elections (like Section 338(h)(10)) can blend elements of asset and stock sales and must be carefully plannedhttps://www.hayniecpas.com/asset-sale-vs-stock-sale/#:~:text=It%20is%20possible%20%E2%80%93%20and,specific%20tax%20or%20legal%20outcomes. Prime 100 collaborates with tax professionals to help you understand the tax implications of different deal structures. We coordinate with your advisors to allocate purchase price among assets, evaluate whether a stock or asset sale is better for your situation and structure earn‑outs to achieve favourable tax treatment. Our goal is to ensure your transaction is tax‑efficient and meets your financial objectives.