A 1999 law that crippled many small-business sales may soon get amended If you're thinking of selling your business, take heart. Congress is working to repeal a disastrous change in the tax laws that has stalled sales of some companies and been accused of jeopardizing the retirement security of hundreds of thousands of small-business owners. The law, signed late last year, forces sellers to pay capital-gains taxes up front even when payment for the business is staggered over a number of years. Passed as part of 1999's Ticket to Work and Incentives to Work Improvement Act, the law affects only businesses using accrual rather than cash accounting.
Cash accounting is more closely comparable to balancing a checking account.
Profits are noted only after they are received. Many small businesses favor the cash system because it's easier to administer and doesn't require paying taxes on unrealized income. But the choice hasn't always been theirs to make. Tax laws require companies with income-generating merchandise to track inventories using the accrual system. Dental and medical clinics as well as contractors and landscapers fall into that category.