When buying a business, buyers often incur costs for planning, negotiating, brokering and conducting due diligence research. Depending on the specific details, portions of those costs may be tax deductible. Buyers can typically write off up to $5,000 for some of the costs involved in buying a new business – usually these include the costs of investigating whether the company is a good purchase. These costs can be things like product analysis, site visits and market research. For sellers, the write-offs are different and typically involve subtracting the costs of research you incurred before selling the company (over/above any previously taken tax credit) from the profits you make on the sale of the company. This is usually not a straight deduction, but does serve to lower the seller’s taxable gains.
Tax laws can and do change frequently and your best bet is to bring a trusted tax advisor into the buy/sell process to ensure that you get all of the tax breaks and advantages available to you.