how do I sell my business shares in s-corp?

This is a question for the lawyer who draws up the sale agreement.

You stop reporting the passthrough income, and he starts reporting it.

I suggest you engage the services of an accountant in addition to the lawyer. There may be ways that the sale can be structured to lessen its effect on your income tax. You also will need advice on dealing with the issue of YTD corporate income at the time of the sale.

The first thing you need to do is contact your attorney & your CPA.

The sale of the shares in your S corp will require the corp sec to issue a new stock certificate to the new owner & cancel the old one.

When preparing the S corp tax return, the transfer of interest will consist of the income being allocated on the k1.

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wrote

You get a lawyer to create all the necessary documents to finalize the sale.

It's not automatic, and if you think it was, then you're missing something. The corporation files an 1120S with the appropriate K-1 forms to report the net profit and/or loss to the shareholders during the year. If you sell your shares in mid-year you and the other shareholder will EACH receive a K-1 reporting your respective shares of net profits (or losses) for the year. There are two different ways to do this, so consult a CPA or EA familiar with "S" taxes, ~~~before~~~ you go to the attorney to draw up the sales agreement, as it should be stipulated in the documents how this get handled.

FYI: You'll be getting a K-1 that will be prepared by the new shareholder, so you had better know he's not going to stick you with the profits that you'll not have any benefit from.

Yes - the legal documents and agreements should be prepared by a lawyer. Some, but probably not all, of the documents would be a Stock Purchase Agreement, Assignments, Stock Powers and the necessary corporate resolutions.

There are different strategies for selling the stock of an S corporation, depending on if you want to close the books or not. I would advise you obtain the services of a tax and corporate attorney who could probably advise you on the entire deal and prepare all of the necessary documents. This way you kill two birds with one stone and get expert planning advice. You will want to negotiate specific tax provisions in the stock purchase agreement to protect you.

- This is not to be regarded as tax advice and cannot be used for the purpose of avoiding penalties.

Ryan Pinder - Tax Attorney rpinder@ gmail.com