When the owners of a family business are ready to sell, there are many considerations. Among the most important is handling the sale in a tax-wise manner.
In most cases, the buyer wants to make a direct purchase of the company's assets — as opposed to buying all the ownership interests in the legal entity used to conduct the business. A direct asset purchase allows the buyer to "step up" the tax basis of the acquired assets to reflect the purchase price. That means bigger post-purchase tax write-offs for depreciation, amortization, cost of goods sold and so forth.
A specific set of federal income tax rules applies to these transactions. Sellers who plan ahead can minimize their tax bills. Those who don't often pay too much to Uncle Sam and their state tax collectors.