Accounting & Bookkeeping & Small Business Forum

[Guest]

A friend of mine just recently sold a business. It was a stock puchase sale. He received a six figure check for the sale. His frustration is the inconsistent answers so far from his accountant on what taxes are owed and when they need to be paid. First she said expect to pay 15% on the proceeds. Then comes back and says it's 19%! Then she also said, instead of paying the taxes in a lump sum as a capital gains on personal income, that instead they should be taking the taxes out of his payroll for the remaining part of the year. Needless to say-he's a mildly ticked off! So I have a couple questions since this is out of my area of expertise. When are the taxes due? How much is due? Isn't the sale considered a capital gain that would be included on his 2004 tax return in lieu of these payroll deductions as previously mentioned? Thanks for any information any may have.

[Guest]

I assume she didn't know the amount of the gain on the sale, and so assumed that it would be in the 15% range. Once she learned the total gain, she adjusted the rate. Regarding the deduction from payroll, she's not changing the type of payment, just the mode of payment. If he waits until tax time to pay the capital gains, it may result in a penalty (depending upon his tax liability from last year). By deducting it from his paycheck she may be saving him that penalty. Either way, it will be shown as a capital gain in next year's tax return, and by deducting it during the year, his check will be less on April 15th.

[Guest]

Dear Bryan,

I agree with you regarding his accountant changing the estimated percentage now that she knows the exact proceeds.

As far as mode of payment and a tax penalty, I still question the payroll deduction method. She has had his tax returns for several years and knows the history of his tax liability. She did the returns. In addition, he is extremely organized and can provide her the numbers in order to calc the estimated tax liability based on this years income.

He purposely left some of the funds liquid in order to even make an estimated tax deposit if necessary.

My question is, wouldn't it make more sense to make an estimated tax payment before year-end for a percentage, and pay the remaining on April 15th? Not unlike someone who gets an extension on a personal return, but must still pay a percentage of taxes owed by April 15th. That way he can operate his household expenses as usual and not have to deal with a net check that would really mess up his monthly cash flow budget.

Look forward to your thoughts. Thanks.