And finally - as you are selling business assets using installments - the buyer will typically pay a down payment, and then the seller finance the rest so that the buyer will pay in installments over a period of time, determined in the sales agreement plus an interest
The main benefits
to installment sales is that this will generally bring a higher price than bank-financed sales, and the taxes can be reported over time as you receive payments allowing you to defer tax on capital gains. But not all asset sales can be reported in installments - inventory or accounts receivable are not eligible for installment accounting
- you should pay tax on these items within the year of making the sale, whether you have already received payment or not.
You will find reporting
requirements and examples in the IRS publication 537 - http://www.irs.gov/pub/irs-pdf/p537.pdf
Use Form 6252 , Installment Sale Income, to report an installment sale in the year the sale occurs and for each year you receive an installment payment.
You report interest on an installment sale as ordinary income in the same manner as any other interest income. If the installment sales contract does not provide for adequate stated interest, part of the stated principal may be recharacterized as "imputed" interest or as interest under the original issue discount rules
, even if you have a loss. You must use the applicable federal rate
(AFR) to figure the unstated interest on the sale.