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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
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Experience:  15+ years tax preparation and tax advice.
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In sale of a shoe business how is goodwill treated in the tax

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In sale of a shoe business how is goodwill treated in the tax return?The goodwill was created not purchased when she opened up the business. Is the amount of goodwill money received ordinary income?
Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.

Hello there,

$ amount attributed to goodwill (generally defined as the value of the business due to expected continued patronage of customers) will be treated for tax purposes as follows:

The seller (receiving the income) will treat the amount as long term capital gain.

The buyer (paying for the business) will amortize that expense over 15 years... (this means that if $1,500 of the purchase price was considered goodwill, the new owner will deduct approx. 100 per year.

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