In US lower-middle-market M&A, purchase price is only the starting point of deal evaluation. What a seller actually receives depends heavily on entity structure, purchase price allocation, debt payoffs, and federal and state tax liabilities.
Consulting your CPA before signing a Letter of Intent (LOI) ensures you structure the transaction to minimize tax friction under Internal Revenue Code (IRC) rules.
Key Questions for US Business Owners to Ask Their CPA
- Asset Sale vs. Stock Sale Dynamics: How will the buyer’s preferred structure affect my tax rate? (Asset sales frequently trigger ordinary income tax rates on depreciated equipment and inventory).
- IRC §1060 Purchase Price Allocation: How will proceeds be split across machinery, receivables, goodwill, and non-compete agreements?
- Depreciation Recapture Risks: How much of my gain will be taxed at ordinary income rates due to prior Section 179 or bonus depreciation deductions?
- Section 1202 QSBS Eligibility: Do my shares qualify for Qualified Small Business Stock (QSBS) exclusions, potentially eliminating federal capital gains tax?
- SBA Loan & Debt Payoff Mechanics: How does paying off corporate debt at closing impact my net taxable gain versus actual cash proceeds?
- State & Local Tax (SALT) Exposure: What state-level income taxes will apply based on corporate nexus and personal residency?
Conclusion
Tax strategy should inform deal structure long before binding agreements are signed. A certified business appraisal from Aspen Valuations provides the defensible, standards-based foundation required by CPAs and M&A advisors to model tax outcomes, protect equity, and execute a successful transaction.