Ask Terry Questions Is sale of a business income for Roth purposes?

Is sale of a business income for Roth purposes?

By Terry Savage on October 19, 2018 | Wild Card

I am selling my small business. The buyer is paying me in 2 installments over a two year period. I was told the money might be considered a capital gain but I did not purchase my business, it was a start up about 19 years ago. My question is, ” Will the money be considered earned income or a capital gain?

Terry Says

It depends on how the deal is structured. Likely it will be considered capital gains — and thus get a lower tax rate. Perhaps your deal could be structured so you have some kind of “earn-out” provision for a small portion of the money. But since you don’t get a deduction for a Roth contribution, it’s hard to see why you would give up the favorable capital gains tax rate on any portion of the deal. That’s why you need both an attorney and tax expert to review your situation.



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