Taxes on Profits to Pay Seller Note

by a searcher

9 months ago

If you acquire a business using seller financing, and intend to use profits of the business to pay off the seller note, are you still taxed on those profits or do they count as interest expense or something else that would limit your tax exposure?  If you are taxed, are there any tax deferral strategies out there?

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searcher from Carnegie Mellon University - Tepper School of Business

Interest payments show up on your P&L and decrease your taxable income. Principal payments impact your balance sheet and cash flow statements. They are not tax deductible and must be paid out of your net operating profits after tax. Luckily, for business acquisitions, you are able to depreciate/amortize the business purchase assuming an asset sale or share sale with 338/336 elections.

Disclaimer - not an accountant or lawyer :)

4 months ago | like reply | 0 likes

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