• 100% Satisfaction Guarantee
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
36384704
BK-CPA is online now

# what is the tax when I sell 100% of my s-corp stock

### Resolved Question:

what is the tax when I sell 100% of my s-corp stock for 5% of gross sales over 20 years?
Submitted: 3 years ago.
Category: Tax
Expert:  BK-CPA replied 3 years ago.

Hello and thank you for your question.

.

The starting point is to determine the fair value of the stock. If you were to sell this to a third party for cash up front, what would the price be? That is the sale price of the stock and a note payable from your son to you should be drawn up in the year of the sale. Gain or loss should be calculated accordingly, noting if you take back a note and have a gain you can use the installment method. If using the installment method, interest should also be calculated each year.

.

That said, I realize you want to do 5% of sales. That is fine, but the difference between what you receive (or do not receive) and the payments you should receive based on the note payable is going to be a gift.

.

Example:

Given:

1) The fair value of the stock is \$100,000 so you sell the stock to your son for that amount as you do not intend to gift it initially.

2) Your basis in the stock is \$50,000, meaning that for each \$1 you receive \$0.50 is gain.

3) You take a note from your son to pay for the stock at 5% interest.

4) Per your agreement, you have your son pay you 5% of sales with a maximum loan period of twenty years (ie... state in your loan that after 20 years any unpaid principal balance is immediately due and payable).

5) In year one you receive \$5,000.

6) In year two you receive \$10,000.

7) In years three through twenty you receive \$85,000 in principal payments plus interest.

8) Your son does not pay anything other than the 5% of sales for twenty years.

.

Then:

1) In year one the entire \$5,000 payment is interest revenue given the 5% interest rate and after year one the principal balance of the note remains \$100,000.

2) In year two you receive \$10,000, half of which is principal bringing the note balance down to \$95,000 and half of which is again interest revenue to you. At this point, you would recognize gain of \$2,500 having received \$5,000 principal payments using the installment method.

3) After twenty years the balance of the note is \$10,000 (this is the \$95,000 balance after year two less the \$85,000 in principal payments received during years three through twenty). If your son is not going to pay you the final \$10,000 that is due and payable, it is a gift from you to him.

.

.

BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience: Owner of a CPA firm

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

### What Customers are Saying:

• I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Previous | Next >
• I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
• I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
• Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
• Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
• Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
• This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
• Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA

• ### Wallstreet Esq.

#### Satisfied Customers:

577
10 years experience
< Last | Next >

### Wallstreet Esq.

#### Satisfied Customers:

577
10 years experience

### Mark D

#### Satisfied Customers:

1245
MBA, EA, Specializing in Business and Individual Tax Returns and Issues

### Richard

#### Satisfied Customers:

3882
29 years of experience as a tax, real estate, and business attorney.

### Robin D.

#### Satisfied Customers:

11072
15years with H & R Block. Divisional leader, Instructor

### Megan C

#### Satisfied Customers:

8621
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

### jgordosea

#### Satisfied Customers:

2884
I've prepared all types of taxes since 1987.