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RLWEA, Accountant
Category: Tax
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Experience:  I am an Enrolled Agent with the IRS for 25+ years. Thank you for allowing me to assist you!
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I sold my dental practice and received 500K in personal goodwill.

Customer Question

I sold my dental practice and received 500K in personal goodwill. Where do I report this income on my 1040? Is it a 4797 asset sale with a basis of $0 and then transfered to schedule D or something else?
Submitted: 3 years ago.
Category: Tax
Expert:  jgordosea replied 3 years ago.

Greetings,

 

Was the activity reported on Schedule C?

 

Or was the practice organized as an entity (if so, what type)?

 

Thank you.

Customer: replied 3 years ago.
The practice was an LLC, but the sale of goodwill was specifically allocated to me as an individual
Expert:  jgordosea replied 3 years ago.

Was the LLC taxed as a partnership or as a corporation?

 

Did you get a Schedule K-1?

If so, does the K-1 not reflect the sale?

 

If so, does the K-1 not reflect the different amount specifically allocated for sale of the goodwill?

 

Thank you.

Customer: replied 3 years ago.
My practice LLC is treated as an S Corp(1120S) however The contract for sale of the goodwill was executed between me and the buyer as individuals outside of the LLC/S Corp therefore no K-1. Do I reprt this on my 1040 as a Form 4797 asset gain or somewhere else
Expert:  jgordosea replied 3 years ago.

Greetings,

 

It does not appear proper to me, from the limited facts presented, for you to report the sale of a business (or assets of that business) that was incorporated "outside the LLC/S Corp".

 

If the goodwill (or anything else that was sold) was an asset of the corporation, the sale would need to be reported by the corporation (and reflected on your K-1).

Or, before you personally can sell such an asset it would have to be distributed to you by the corporation and that distribution would have to be reflected on the corporate books, tax return and on a Schedule K-1 to you.

 

Of course, application of the general tax rules to specific circumstances does require all of the facts in order to make correct application and I may not be aware of all of the facts in your case.

 

You may wish to consult with the attorney and tax practitioner that assisted you with the sale to confirm how the sale was structured.

 

I will opt out of this question to allow others an opportunity to answer.

Customer: replied 3 years ago.
I appreciate your input
Customer: replied 3 years ago.
Relist: Other.
Expert withdrew, received no answer I wirthdraw the question
Expert:  RLWEA replied 3 years ago.
Sir, The sale of Goodwill is a Capital Asset. Did you have any goodwill that you were amortizing? If you do, then that would be your basis, and yes you would report on Form 4797 so it picks up the amortization allowed, and will carry it over to Schedule D.

Are you receiving the funds all at one or on an installment plan? That will also make a difference in how you report it. I hope for the tax reasons, you are receiving the payments in installments.
If I can be of further assistance and or clarification please let me know.
Customer: replied 3 years ago.
No previous amortization of goodwill personally or otherwise. My practice is a PLLC. The PLLC is selling the tangible assets and I am personally selling the intangible goodwill per my attorney. I am taking the personal goodwill payment as a lump sum because I have an unused stock loss carryover of 545K which I can use to negate the capital gain realized with the sale of my goodwill. Sounds like Form 4797 plus Sched D is appropriate. How about those Reno air races?
Expert:  RLWEA replied 3 years ago.
Pretty wild aren't they?! Back to the business at hand. Your attorney came up with a great strategy for you to be able utilize the unused loss carry forward. I also sold my S Corp and sold the goodwill outside of the corporation with no problem from the IRS. So you would have zero basis, $500k sales price and gain, which netted with your capital loss carry forward, will be a $<3000> net loss ( I assuming no other capital gains or losses), and still have a $42,000 capital loss carry forward. Instead claiming it on Form 4797, since this outside the PLLC,just report directly on Schedule D ( that is the way I handled it.) Still the same net effect.

If I can be of further assistance and or clarification, please contact me.
Customer: replied 3 years ago.
Just list it on Sched D as I would a stock called "goodwill"?
Expert:  RLWEA replied 3 years ago.
Yes report it on Schedule D, only I would list it as "customer list" or "client list" versus Goodwill. The only reason for this is to not flag "goodwill" when there is no business schedule,even though there is a K-1. The IRS just is not savvy enough to put together the Form K-1 and the Goodwill sold. Does this make sense, or did I convolute it more?

Let me know if you understand my reasoning and if you have additional questions.
RLWEA, Accountant
Category: Tax
Satisfied Customers: 69
Experience: I am an Enrolled Agent with the IRS for 25+ years. Thank you for allowing me to assist you!
RLWEA and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
You R the bomb....hope 2 c u at the Races n Sept....I come every year. Dr. P
Expert:  RLWEA replied 3 years ago.
Can I ask, Dr. P? who? My CPA practice was in South Lake Tahoe, CA. Stephen D. Wysong, CPA. We had quite a lot of clients in the Valley and Reno area, especially Dentists. Do we know each other? My husband passed away in 2009, but maybe you knew him. He was the City Treasurer for over 20 years.
Anyway, I hope to see you at the Air Races in September...how will I know it is you? You have an advantage having a photo of me!
Dr. P it has been a real pleasure assisting you. If you should need additional assistance in the future please ask for RLWEA.
Sincerely,
Robyn
RLWEA, Accountant
Category: Tax
Satisfied Customers: 69
Experience: I am an Enrolled Agent with the IRS for 25+ years. Thank you for allowing me to assist you!
RLWEA and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
I am selling my Tulsa, Ok oral surgery practice and am a retired Southwest Airlines Captain. 60yo, love flying and stay at the peppermill in Reno with friends while visiting the Reno Air races. Send me a # XXXXX@XXXXXX.XXX and I will call you when I arrive.

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