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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
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I am the sole member of a small s-corp service business (income

Customer Question

I am the sole member of a small s-corp service business (income ~$15k/yr) and have no employees or assets. I'm going to sell my business to a friend for $2000. She is buying my customer list and will not continue using my business name. How do I report this on my 2013 s-corp return?
Submitted: 8 months ago.
Category: Finance
Expert:  Megan C replied 8 months ago.

Megan C :

Thank you for question. Thanks for requesting me directly

Megan C :

The sale of the business will show up on your 1040 schedule D as a capital gains transaction.

Megan C :

Your S Corp return will just have your final year of income and expenses.

Megan C :

Do this as a stock sale, and it will be very straight forward.

Megan C :

The corporation will continue, but your friend will now own it. There's nothing to do on the S Corp return and you just show the sale on your tax return

Expert:  BK-CPA replied 8 months ago.

Hello and thank you for your question.

 

If this is done as a stock sale, then the S-Corp would continue to exist and it would not be a final 1120S return. Further, your friend would have to purchase your share of the S-corp as opposed to your friend just purchasing the customer list. Your friend would then be forced to be taxed as an S-Corp too.

 

The proper way, if your friend is purchasing the customer list from your S-Corp and nothing else, is to show this on Schedule D for Form 1120S. Attach Schedule D to your final S-corp return. This will both show the sale and close your S-Corp down.

 

Note that your basis in the customer list is going to be $0 unless you purchased the customer list, inherited it, etc. I assume you developed the customer list in the ordinary course of business when I say your basis would be $0. The full $2,000 would appear as a gain given a $0 basis in the list.

 

The latest version of Schedule D for an S-Corp can be found here:

 

http://www.irs.gov/pub/irs-pdf/f1120ssd.pdf

 

Also, Form 8594 should probably be filed for this. The form is here:

 

http://www.irs.gov/pub/irs-pdf/f8594.pdf

 

You may wish to note that the sale of a customer list can be construed as producing ordinary income as opposed to capital gains. While this is a bit of a debated topic, I personally look to IRC 1221 and consider it a capital asset, but warn you to do so at your own risk. (ie... you would prefer capital asset treatment and not ordinary income treatment).

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