Your client, the majority shareholder in a small business, is considering selling his shares to an “outside” party who would like to take control of the enterprise. Your client’s basis in his shares is significant because he bought them from the corporation for the primary purpose of infusing capital into it; however, the aggregate capital of the corporation never exceeded $1 million when he purchased shares. He wonders what the tax consequences will be to him of the sale, e.g. how can he optimize them to his benefit?
Other information: The client is married and will file a joint return with his spuse.
Questions:
What will be the consequences if the stock is sold at a gain?
What will be the consequences if the stock is sold at a loss?
Are there other factors your client should consider in this situation?