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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 577
Experience:  10 years experience
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I am selling an insurance office, the book of business.

Customer Question

I am selling an insurance office, the book of business. There are no other assets, just the policies. I have had the business for a year an a half. I am wondering upon the sale what percentage to I need to put aside for taxes. Would it be ordinary income level or something else?
Submitted: 4 months ago.
Category: Tax
Expert:  Lev replied 4 months ago.

It will be ordinary income.
However if you properly report - that income would not be subject to self-employment tax - only income tax on the gain realized from selling self-created intangible assets.

Customer: replied 4 months ago.
I don't believe that is correct. I have done some research and if I owned the business for over a year then the sale is considered a capital gains and taxed at a 15% rate, not ordinary income.
Expert:  Lev replied 4 months ago.

That would not be correct interpretation.
When you are selling a BUSINESS - that is a sale of assets that are included into your business.
So whether the gain is treated as ordinary income or as a long term capital gain - is determined separately for each asset.

Thus - your business includes a real estate building - the gain realized on THAT asset will be long term capital gain - assuming the building was owned more than a year.

In your situation - you are selling the book of business - and that is section 197 intangible asset.

Thus - if that asset was purchased, held more than a year and amortized - in this case the gain (above the amortization recapture) is treated as long term,

However - if that is a self-created intangible which was created in the course of your business operations - such gain is ordinary income.

HOWEVER - the tax treatment will be different if you organize your business as a corporation and simply sell shares of that corporation.

If you have a different information based on your own research - please provide and I will verify.