There are tax implications for both the buyer and seller depending on how you structure the transaction.

It is extremely important that both parties get advice from tax accountants experienced in business transactions because of the many nuances that can occur in various types of deal structures.

Generally speaking, below are deal structure methods and their taxation consequences:

Cash Only – Capital gains tax or ordinary income depending on the nature of the assets if sale of assets.

Cash and scheduled payments – Depends on the guarantees made, the allocation of the purchase price, whether the payments are secured and the accounting methods used by the seller.

Consulting agreement – The seller records the proceeds as ordinary income for tax purposes and must pay ordinary income tax and FICA.

Stock sale – The seller owes capital gains tax on the difference between his or her basis in the shares and the stated sale price.

Asset sale – The seller owes capital gains tax on the difference between his or her basis in the assets and the stated sale price.