Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

We sold our business a few months ago. As part of the sale…

Customer Question
We sold our business a...
We sold our business a few months ago. As part of the sale and process, we had to enter non-compete agreements with our franchisor that has 35 location in Atlanta for a period of three years. We had to do a 5 year non-compete as part of a lease agreement and an APA for the sale of the business. Is the non-compete something we can use to claim losses based on the performance of the business? can it be amortized over 5 years or 15 years? (term of the lease?)
Submitted: 2 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Customer reply replied 2 years ago
It was a preschool business
Answered in 7 minutes by:
2/19/2016
Tax Professional: Lev, Tax Advisor replied 2 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,350
Experience: Taxes, Immigration, Labor Relations
Verified

You are correct that non-compete agreement is classified as amortizable section 197 asset and as such it is amortized over 15 year period.
However - in your situation - there mist be cost basis to claim amortization.
If you paid certain amount to obtain the non-compete agreement - that woudl be cost basis.
But if you do not have any basis - there is nothing to amortize.

We may not use expected losses which were not included into your income as the cost basis.
But if for some reason that amount WAS included into your taxable income as a part of sale contract - the situation might be different.

Please verify.

Ask Your Own Tax Question
Customer reply replied 2 years ago
I'm not sure, but part of the buyer's requests and demands were that we show past income tax returns and
quarterly reports to come up with the goodwill amount. That franchisor we had makes it impossible for us to open
a similar business for three years and the lease agreement restricts if for the term of the lease. Its 15 years with two 5 year renewable clauses. Can the agreement be amended to gain tax benefit?
Customer reply replied 2 years ago
we paid 20% or are still paying 20% on the goodwill amount. It was a small business, but my sole source of income. The lease only covers mortgage and expenses. We won't own our building for another five years.
Tax Professional: Lev, Tax Advisor replied 2 years ago

How you handle proceeds from your business is a separate issue - we may address that - but I do not want to mix several issues to avoid confusion.

Regarding the non-compete agreement....

For instance if you PURCHASE the business and business assets include the non-compete agreement - so you allocate a part of the purchase price to that agreement - for instance $10,000 - that woudl be your basis which you PAY - and you woudl amortize that cost over 15 years.

However - if you the one who SIGNED the agreement - and do not pay anything - you do not have any basis and there is nothing to amortize.

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,350
33,350 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
We sold our business breakdown as follows, Class 5, Class 6
We sold our business breakdown as follows, Class 5, Class 6 Non Compete, Class 6 Trade Name, Class 7 Goodwill. … read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,350 satisfied customers
I am selling my client list of my tax practice to another
I am selling my client list of my tax practice to another tax professional. We have had an office in home so the only thing that is being sold is the client list. We are shutting down my partnership, … read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,350 satisfied customers
Sold the Business our S-Corp owns and was trying to make
Sold the Business our S-Corp owns and was trying to make sure I get the forms right of where I need to file the Goodwill and Assets, inventory … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
S-Corp sold business assets to include advance payment,
S-Corp sold business assets to include advance payment, goodwill, and equipment; how and which form used to report … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
We (a start-up) need to file our tax Form 1120. We're having
We (a start-up) need to file our tax Form 1120. We're having trouble with Line 20, which asks for "Depreciation from Form 4562", a form which requires us to determine the amortization of our software … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
My wife and I sold our S-corp franchise business as an asset
My wife and I sold our S-corp franchise business as an asset sale. The sale price was divided among Class V, VI and VII assets (tangible property, non-compete and goodwill, respectively) which I have … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
This question is for Lane JD. I had a friend who asked me to
This question is for Lane JD. I had a friend who asked me to find some qualified employees for his sales organization, and was willing to pay a percentage of sale to the employee and a finders fee to … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Client sold the business and was paid for a Restrictive Covenant
I have a client that sold their business and as part of the agreement was paid for a Restrictive Covenant not to compete. Can an argument be made to pick the income up as ordinary income but not have … read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,453 satisfied customers
Considering Selling my trucking business ( Incorporated, S
Considering Selling my trucking business ( Incorporated, S Corp ). I am the sole owner. Have around 200,000 basis and looking to sell @ 1,200,000. Met with a very interested buyer. I will offer seller… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am selling a bakery business for $160K The APA agreement
I am selling a bakery business for $160K The APA agreement prepared for buyer allocates the sale of assets as $150K FF&E, $5K goodwill, $5K non compete covenant. Our bakery is owned by a single partne… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am doing an asset sale of my LLC. The equipment is worth
I am doing an asset sale of my LLC. The equipment is worth about 15,000 and the Good will i put as 90000.00 and the non compete at $25,000. Is that the best tax structure for me. Will all but the $15,… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,350 satisfied customers
As part of an acquisition former owners will be paid a
As part of an acquisition former owners will be paid a non-compete over 3 years. They will also be employees of the acquirer. Are these payments includible in the W-2? Or is there a position to say th… read more
Dimitry Esquire
Dimitry Esquire
Attorney at Law
Doctoral Degree
113 satisfied customers
I am a physician and paid $95K to get out of my non-compete
I am a physician and paid $95K to get out of my non-compete with previous employer and want to know how to deduct this cost on my taxes. Can I take the deduction all in 1 year, or over the length of t… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
We are selling a small coffee roasting business. We put in
We are selling a small coffee roasting business. We put in $20k and will receive $30k. We are okay with a non compete un benownst to the buyer. How much of $30k should be allocated to sell price? What… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Appropriate deduction for current year and specific question
Appropriate deduction for current year and specific question concerning the reporting of intangibles related to the acquisition of a business during the year. Information below Acquired the assets of … read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,350 satisfied customers
i am selling my c corp with a asset sell. the total sell price
i am selling my c corp with a asset sell. the total sell price is 1,30,000.00. the break down is inventory $360,000 furniture & fixtures $ 90,000 goodwill $580,000 i will be holding a moetgage for $25… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,350 satisfied customers
I created S-Corp in 1999 for a retail business, and have always
I created S-Corp in 1999 for a retail business, and have always been the sole shareholder; it was never a C-corp. I am contemplating asset sale, where allocation of price will be to fixtures/equip, in… read more
MequonCPA
MequonCPA
CPA Firm Owner
Master's Degree
2,165 satisfied customers
Last year my corp bought the rights to software that we ...
Last year my corp bought the rights to software that we previously had been licensing. The terms were : 1. We were granted a shared copyright in the source code (that we modified) as of a certain date… read more
RD
RD
Self Employed
Master's Degree
1,164 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x