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A Special Tax-Saving Election When Buying an S Corp

Here's a bright idea for buyers of S corporations. There's a favorable way to buy the stock and have the transaction treated as a direct asset purchase for federal tax purposes.

If a C or S corporation is making a taxable acquisition of an S corporation, the preferred approach is often to buy the assets rather than all the stock.

The major benefits of this type of sale:

  1. 1. The buyer avoids becoming legally responsible for the target corporation's unknown or contingent liabilities.

2. The acquiring corporation can “step up” the tax basis of the acquired assets to reflect the purchase price. This generates bigger post-purchase tax deductions and lower tax bills for the corporation.

But there's a downside to a direct asset purchase: If there are a multitude of assets, the buyer must incur legal fees to transfer title to each of them.

Read the full article to better understand the benfits and obstacles. And, if you want to discuss strategies, give us a call. 804-955-4440