Tax considerations for business mergers

Business mergers, which may consist of buying and selling of businesses or integrating two or more companies together, have complex tax considerations. The type of merger will determine a lot about the future value and tax implications to the companies involved. When undertaking a sale, acquisition or merger, there are specific details that can impact the financial side of a business for a long time to come. To ensure a clean merger and avoid unforeseen future pitfalls, involving tax and legal experts early on in the process is recommended.

Before undertaking an acquisition or sale, you must first determine if you are buying or selling stock or assets. If the answer is stocks, keep in mind that the buyer assumes all liabilities of the stock being purchased; both recorded and those that were not recorded. The buyer may be in for a future surprise when they become aware of said liabilities, so putting in the time to thoroughly research the selling company is vital.

When acquiring another company based on assets, the buyer is allowed to report the assets at fair market value, which means a greater basis for the depreciation and amortization deduction upon filing of taxes.  

What you don’t know could hurt you

When joining two or more businesses together, there are some business merger tax considerations of which to be aware. A good understanding of the inside workings of the other company or companies is a must. Find out if they have any existing non-compete agreements with similar businesses or long term contracts with clients and/or business associates. Both can have an effect on the finances and income potential of the newly constructed company going forward.

Other practical considerations include the need to file in a new state or states, payroll matters, redundant associates (attorney, CPA, insurance, etc.) and a change in legal and tax status as a result of the merger.

Getting specific advice

Knowing some of the potential complications involved, should you merge businesses? While on paper a merger may look lucrative, you may still be unsure as to whether it makes financial sense or not. These are excellent questions to go over with professional business consultants.

At GYL, our expert advisors will work with you before, during and after a merger to help you stay on track with maximizing profitability. Our financial consulting services include defining short- and long-term goals and solutions to problems you may confront along the way.

Schedule a free consultation today to learn more about how we can help you achieve success.