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Lev
Lev, Tax Advisor
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I was a 50% owner in a North Carolina S-Corp, along with another

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I was a 50% owner in a North Carolina S-Corp, along with another 50% owner. In mid-2012, I sold my 50% share in this S-Corp to my partner. I received 50% of the operating income year to date and an additional premium. I have two questions:

1. How do I report the income from this sale on my personal income taxes? I am filing my state taxes in North Carolina.

2. The payment for my share of the business was broken down into two installments. One was received immediately, and the other will be paid in March 2013. The purchase agreement for this sale lists the total amount as well as the fact that payments will be broken up into two payments. Do I report the entire income from the sale for 2012, or can I report the portion that will be paid in March on my 2013 income taxes.

Thank you!
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
I will address your tax questions.
1. How do I report the income from this sale on my personal income taxes?
On your tax return - you will report proceeds from the sale of your shares of S-corporation.
The gain will be reported as a capital gain and will be reduced by your basis in these shares.
It is reported on form 8949 - Part II (assuming you held shares more than a year) - http://www.irs.gov/pub/irs-dft/f8949--dft.pdf - box "C" in the header should be checked.
Then - amounts will be transferred to schedule D - http://www.irs.gov/pub/irs-pdf/f1040sd.pdf
In additional - S-corporation will issue schedule K-1 reporting your pro-rata share of income or loss - that is reported on schedule E.

LEV :

2. The payment for my share of the business was broken down into two installments. One was received immediately, and the other will be paid in March 2013. The purchase agreement for this sale lists the total amount as well as the fact that payments will be broken up into two payments. Do I report the entire income from the sale for 2012, or can I report the portion that will be paid in March on my 2013 income taxes.
You need to report the entire amount in the year of the sale. The sale of shares is not eligible for installment payment treatment even if part of proceeds were paid in following years.

LEV :

See for reference this publication - www.irs.gov/pub/irs-pdf/p537.pdf

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22644
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Expert:  Lev replied 1 year ago.
Some additional clarification - see here - www.irs.gov/pub/irs-drop/n-00-26.pdf
Q-1: Can the shareholder report on the installment method the gain arising from a sale of the shareholder’s stock in the corporation in exchange for cash and an installment obligation?
A-1: The shareholder can report the gain from the sale of the stock on the installment method.
So while you cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market - still for the non-publicly-traded corporation - the installment method is allowed.
Sorry for confusion - let me know if you need any help with reporting.

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