Tax implications when sellers include cash on the balance sheet?

searcher profile

August 18, 2024

by a searcher from University of California, Los Angeles in Orange County, CA, USA

I was going through a mental exercise and was wondering: when sellers include cash on the balance sheet as part of a deal, this amount is typically accounted for in the sales price. However, don't they end up paying a capital gains tax on this dollar amount that they could otherwise withdraw themselves without paying taxes?

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Reply by a professional
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA
There are no tax implications under an asset deal or sale of S-Corp stock. Under an asset deal, the sales price is increased but the cost basis in cash is the same as the sales price, so there is no gain. Under an S-Corp stock deal, their gain on the sale of stock is the same whether they take the cash or pre-tax (reduces stock basis) or leave cash in (higher stock basis) and increase the sales price. There could be a difference under a C-Corp structure for the Seller.
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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I have not read ^redacted‌ answer. His is likely to be correct. My quick answer is, seller's tax does not change whether seller does or does not include cash in the deal. There are some benefits if C Corp. seller includes cash in a stock deal and buyer increases price for the cash.
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