Business Valuation Blog | Understanding Buying / Selling a Company

Why Should You Get an Appraisal for Tax Purposes?

Posted by Business Valuation Specialists LLC on Jan 18, 2019 2:12:33 PM

Appraisal for Tax Purposes

<p>When your company is dealing with tax issues, there is any number of issues that may come up. Using the right schedules, withholding the right amounts, making the right deadlines are all among them. But sometimes it's vital that you be able to prove the value of your business beyond a reasonable doubt to a tax agency. When this happens, it's vital that you get a business appraisal for tax purposes. Here's why:</p>

<h1>Why Should You Get an Appraisal for Tax Purposes?</h1>

<ul>
<li>Starting with an accurate business value. When you purchase a business, what's it really worth? If you bought into a company that was overpriced but potentially an okay deal at the time because market conditions said you'd clear the excess eventually, or if it was bought at a song during a slump in the economy, how do you prove the actual value? A business valuation helps to prove what the company is actually worth beyond the purchase price.</li>
<li>Fighting bad tax assessment. We've all known someone who received one - a tax assessment that was so far out of line as to be ridiculous. One contractor told the story of how his warehouse had been assessed at such a high rate, he could have torn it down and rebuilt it twice for what they were assessing it at. A business valuation helps fight bad tax assessments with solid documentation.</li>
<li>Adjusting value for market conditions. Has your industry gone into a bull or bear cycle lately? If it has, it may have affected your company's value significantly, either to the positive or negative. But how do you calculate those changes in value? When you have a business valuation performed, you can then adjust the value of your business in your books to account for these conditions, which will hold up with tax agencies.</li>
<li>Providing proof of value for an audit of past years. Sure, the IRS thinks you have a mistake on your books from 2008, but was your company really worth that much at that point in the recession anyway? If you didn't adjust your books at the time, a business valuation specialist can go back and make adjustments to reflect your company's actual value in the past while providing quality documentation with tested methodologies&nbsp;for your records.</li>
<li>Proving changes in value in the future. You hope your company will be worth more in the future, but by how much? When you have a quality business valuation performed by a certified business appraiser as part of a series of valuations, it's very easy to document your current business' value so that you have a solid basis to judge change in value over the years. This allows you to adjust your books accordingly and get a big picture of what different decisions have done to shift value for your business.</li>
</ul>

<p>Your business needs protection, often from the same government agencies that are ready to overreach their authority and expertise in a wide range of issues. Getting a business appraisal for tax purposes helps you control your company's tax liability when an inaccurate assessment or estimate of value is made by the tax agency. However, the appraisal report only holds up when it's been prepared by a certified business valuation specialist, giving you the benefit of tested methodologies to back up your valuation.</p>

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