I Have This Question. I need an answer relevant to US Tax Code. 5). Leno Hardware is owned and operated as a sole proprietorship by Larry Leno. The location is excellent, and he is approached by a buyer, Hard Bargains Inc., a national chain of hardware stores. What are the tax consequences in the following situations? Larry sells the store for cash. Larry sells the store for marketable stock in Hard Bargains. Larry incorporates the store and exchanges the stock for shares in Hard Bargains. Same as (c), but Larry incorporated his hardware store two years earlier.
5). Leno Hardware is owned and operated as a sole proprietorship by Larry Leno. The location is excellent, and he is approached by a buyer, Hard Bargains Inc., a national chain of hardware stores. What are the tax consequences in the following situations?
- Larry sells the store for cash.
- Larry sells the store for marketable stock in Hard Bargains.
- Larry incorporates the store and exchanges the stock for shares in Hard Bargains.
- Same as (c), but Larry incorporated his hardware store two years earlier.
Expert Answer
When the situation arises to sell your business where the buyers are around the corner, the seller may meet a proper tax bill. Careful computations and transactions are needed while winding up and selling off the business with responsible tax abiding taxes. The seller will be taxed on the gain or profit he/she make from selling the business.
1. Larry sells the store for cash.
- Larry will be liable to pay tax on the profit arising from the selling of the business. The amount of tax varies, as, it depends on the type of income. The difference in the value between the Fair Market Value and the real consideration made as payment for such hardware or property will be chargeable to tax
2. Larry sells the store for marketable stock in Hard Bargains.
- As Larry sells the store for marketable stock in Hard Bargains, the Income from certain marketable securities should be taxed under the
Capital gains , which can be deferred.
3. Larry incorporates the store and exchanges the stock for shares in Hard Bargains.
- Larry is liable to pay the Securities Transaction Tax (STT), and it is unavoidable on all the equity shares which are sold on a stock exchange from Hard Bargains Inc.
4. Same as (c), but Larry incorporated his hardware store two years earlier.
- As hard bargains continue to carry on that business, the predecessor, Larry is assessed for the income amount of financial years before the date of succession and the successor. Hard Bargains Inc. is assessed and liable on the income of the financial period in the date of post-succession.
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