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Gerri A Harrison CFP EA
Gerri A Harrison CFP EA, Enrolled Agent
Category: Tax
Satisfied Customers: 252
Experience:  27 years of preparing income tax returns - both personal and small business
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I sold my business for 60k.(40 cash 25 note w 9in brokers fees.)

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I sold my business for 60k.(40 cash 25 note w 9in brokers fees.) In the sales doc we allocated the sale as ppe 10, goodwill 35 and non compete 20. The buyer defaults before the end of the year. So I'm going to recognize the sale as the 40 in cash with 9 in brokers fees. How should i allocate the sale for tax purposes. I have 177 in assets w accum dep of 63. I intangible assets of 12.

Gerri A Harrison CFP :

Since you initially sold it for $60 with equipment and intangibles and will now get $40 - you would allocate it as 66 2/3 of what you would have initially allocated. For example the ppe would now be 6.6k, the goodwill would be $23k and the non-compete would be $10.4k.

Gerri A Harrison CFP :

On each piece of equipment to determine the applicable percentage - take the total FMV of all equipment assets. Say that is $100k. If equipment X is $5k in FMV that represents 20% of the total so you would allocate 20% of the equipment sales price to that piece of equipment. The same is true of the intangibles, what percentage of FMV are each of the 12 assets.

Customer:

Is the goodwill and non compete considered income? Is the broker fee just expensed?

Gerri A Harrison CFP :

Goodwill and non-compete are considered income. If you sold a sole-prop then the broker fees are just expensed. If you sold a partnership or corporation then you would use the broker fees as of your basis against that income.

Customer:

I'm a single owner s-corp. so is it expensed.

Gerri A Harrison CFP :

That would be correct. So you just need to take the cash received and allocate it between the goodwill, non-compete and equpment. The equipment sales will be on the Form 4797 when you prepare your taxes. The income from the good will and non-compete will be reported on on line 21 of the Form 1040 as miscellaneouse income.

Customer:

So the goodwill is reproted on my personal return not with the 1120s filings. How do I account for the unamortized start-up cost which includes franchise fees? Do I net it against the proceeds allocated towards goodwill?

Gerri A Harrison CFP :

Did you sell the assets of the corporation or did you sell the corporation itself by selling the stock?

Gerri A Harrison CFP :

If you sold the assets, then all the sale is reported on the corporation tax return. If you sold the stock itself and the corporation now belongs to another then you would be reporting the income on your personal tax return

Customer:

sold the assets. I have about 10k of unamortized start-up cost. Do I write that off

Gerri A Harrison CFP :

I am going to opt out at this point - this is not a quick answer and everytime I answer one question, you have another. These really should be multiple questions ar at a rate of more than $16

Customer:

Thats fine. I thought I purchased unlimited use from just answer. I quess I should discuss that with them

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