Today TaxMama hears from Josh in the TaxQuips Forum who is concerned. “I’m interested in purchasing a business which was owned by a sole proprietor. He owes back taxes. Would I be liable for those back taxes if I purchase this business?”
You betcha! Run. Don’t walk.
NEVER, EVER, EVER buy a business where the owner is behind on taxes. Never buy a business where the owner has been paying workers as freelancers – either in full, or partially with wages and partially in cash. Unpaid payroll taxes are a nightmare – and cannot be discharged in bankruptcy. Never buy a business where the owner did not file or pay sales taxes.
Anyone buying businesses like that can become fully liable for the owner’s business-related taxes – and any other potential problems that might rear their ugly heads, even years later.
Naturally, if the guy only owes back taxes on his personal income tax return, that won’t affect you.
If you’re interested in the business? Buy the client list. Perhaps you can buy the equipment, if there are no loans against it/or them. Do not buy the name. Do not buy the phone number. Do not buy the web domain (URL).
Be careful about hiring the employees in the new business. Have them sign all new paperwork and start the payroll all afresh.
And remember, you can find answers to all kinds of questions about businesses and back taxes, and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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