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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am selling a small business (sole proprietorship)with goodwill

Customer Question

I am selling a small business (sole proprietorship)with goodwill gains of 225,000.00. Can I offset these gains by taking losses on stocks that I own?
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

Hello JA Customer,


Income from the sale of business goodwill is treated as ordinary income and is subject to ordinary income tax rates. Losses from the sale of stocks can be used to offset any income you have from capital gains, but those losses can only offset ordinary income up to a maximum of $3,000 each year.


If this was helpful please press the Accept button. It is the only way we receive any credit for helping with these questions.


Thank you



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Customer: replied 6 years ago.

It seems that this sight does not jive with your answer



Can you explain your answer in more detail on why Goodwill is not a capital gain?



Expert:  Merlo replied 6 years ago.

Hello again Tom,


From the seller's perspective, personal goodwill is subject to long-term capital gains treatment. In contrast, any amount allocated to the sale of business goodwill is subject to ordinary income treatment. Thus, the seller of personal goodwill will receive a greater tax benefit for the amount allocated to personal goodwill. In a sale of stock rather than assets, there will be no difference in tax treatment, both personal and business goodwill being long-term capital gains.


If the goodwill can be treated as personal, then this could be treated as a capital gain. Refer to the above article for more details.


Edited by Merlo on 8/25/2010 at 9:36 PM EST
Customer: replied 6 years ago.

because this is a sole propietorship, and not a c corp, how could it be treated any other way than LTCG? There is no line in form 8594 that says personal or business goodwill.


It is a class VII asset, that flows directly to Schedule D section 2 Long term capital gains. Am I right. And if I am then I could take other stock losses and mitigate the LTCG.


Is that correct?

Expert:  Merlo replied 6 years ago.

Hello again tom,


I am going to put your question back on the open list in the forum to see if one of the other tax experts here is more familiar with how to report this being a sole proprietorship. If someone else posts a response, you will receive an email notification.


Thank you for your patience.




Customer: replied 6 years ago.

Any luck with confirming the anwer?


We are closing tomorrow and this is a big deal to me $40,000 in tax difference, so if you find something please let me know asap.



Expert:  Merlo replied 6 years ago.

Hello Tom,


I did put your question back on the board for the other experts in the forum to review. I see that no one else has responded but unfortunately I have no control or any way of knowing if any of the other experts here feel they have enough hands on experience with this particular issue to be of help.


I can only tell you that if someone has an answer to your question they will post a response and you would receive an email notification that a response has been posted. But there is no way to know if you will get an answer by tomorrow or even at all.



Customer: replied 6 years ago.

Hey Merlo,


If no-one feels comfortable answering the question then maybe I should just get my $30.00 back and we call this square.


I do believe that the gain on Goodwill is LTCG, and can be offset but other stock losses. Please not that this is a SP, so everything flows to my personal Scedule D.


If you have anything other than that let me know, or give me my mony back.



Expert:  Merlo replied 6 years ago.

I will send through a request to our customer service department to issue you a refund, as I have no direct control over the money or deposits that are made to this website.



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