Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

We invested $80,000 to start our LLC business and recently…

Customer Question
We invested $80,000 to...

We invested $80,000 to start our LLC business and recently sold its flagship software product for $30,000 plus 20% stake in the new company under the new owner. We have filed paperwork to close down our business with the States of DE and MD. In addition, throughout 5+ years of tax returns, we amortized and depreciated our software assets from $50K to 0.
Is the sale of the software product considered long-term capital gain? How are the taxes considered for the 20% stake in the new company? Are there any tips on how to lower our taxes before the year end?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

Hi, could you please help me with the scenario above?

Submitted: 6 months ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 10 hours by:
12/27/2017
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,084
Experience: 35 years tax experience, including four years at a Big 4 firm.
Verified

Hi from Just Answer. I'mCustomer and can assist.

Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

The sale of your software product is ordinary income for the $30,000. The sale of the equity interest depends on how the sale was structured and the terms of your deal.

Can I suggest a phone call service to discuss alternatives?

Ask Your Own Tax Question
Customer reply replied 6 months ago
I read an article (https://www.bizfilings.com/toolkit/research-topics/running-your-business/tax-aspects-of-selling-your-business-an-overview) that instead of selling the company, if we sold the product it's considered capital gain instead income. "As the seller, you will probably want to allocate most, if not all, of the purchase price to the capital assets that were transferred with the business. You want to do that because proceeds from the sale of a capital asset, including business property or your entire business, are taxed as capital gains."
Customer reply replied 6 months ago
The equity interest is simple as that, a membership interest in the new company, nothing special. How would taxes be considered?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

Sounds like the author considers you selling your business. You are selling an interest, which means you continue to operate it.

If you were liquidating a portion of your business, say like selling your office products division while retaining your consumer products division, you could get capital gain treatment on the sale of a segment of your business.

If your facts support that treatment, I would agree with capital gain treatment.

Positive feedback is appreciated if I have answered your questions. I'mCustomer

Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

I missed the new company setup. I thought your buyer bought 20% of your existing entity.

I will make a phone call offer to discuss in more detail.

Ask Your Own Tax Question
Customer reply replied 6 months ago
I think you misunderstood my questions. My scenario is that I'm selling my business/product and closing my company and no longer want to operate.
Customer reply replied 6 months ago
How much taxes would we be liable considering our initial investment cost? I can't see it as income taxes.
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

I misread. You are selling your company for cash and an interest in the acquirer and are shuttng down your business. I suspect you also get a job with the deal.

You get capital gain/loss treatment for the sale of your shares. You may have s corp income on the sale of your software first.

You need to determine the value of the shares you receive as part of the transaction, which could be taxable to you as capital gain.

I still suggest the phone call to discuss the tax treatment. See my offer.

Ask Your Own Tax Question
Customer reply replied 6 months ago
This is all LLC, no s corp. The new company by the new owner is also LLC. No job, just straight equity. I need numbers. What are the taxes considering initial investment cost (cost basis)?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

Your tax gain is calculated as follows:

Original basis

Plus income earned, less losses

Plus additional investment, less withdrawals

Is adjusted basis.

Add income from sale of software

Updated adjusted basis

Then

Exchange of your shares for equity in new company

Capital gain on sale.

Thanks again for asking at just answer. Positive feedback is appreciated.

Customer/p>
Ask Your Own Tax Question
Customer reply replied 6 months ago
How would the 20% of the new company valued? No estimate is known to me since it's new. Would that also be capital gain?
Given my numbers, would my capital tax gain be zero? $30k sale - $80k cost = -$50k loss, also considering depreciations?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

You do have to value the interest you received as sale proceeds. If your agreement does not specify, you will need an estimate of value.

It might have little value now, for example, if you were given employment agreement to stay with the new venture. Your specifics will dictate.

If you did not include employment in your agreement, then a reasonable value must be determined.

Customer/p>
Ask Your Own Tax Question
Customer reply replied 6 months ago
This is not helpful at all to me. I'm more confused after all the answers and corrections I have to make to your answers. I still do not know how to consider the following into my taxes: initial investment cost, depreciation of asset, how much taxes, capital gain vs income, useful tips on how to value my new interest in the new company, tips on how to reduce taxes before year end as asked in my initial request.Your generic answers are not useful. You also lack understanding of my scenario.
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 6 months ago

Specific above is available via the phone call offer made. Please consider accepting that for a phone call to address each of those areas in detail specific to you. That call would also allow for a 'fresh start' for you to identify terms of your sale that are still not provided, which would allow me to be specific in my response.

If that isn't agreeable, I will opt out and other experts can assist.

Customer/p>
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 PDtax Your Own Question
PDtax
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,084
5,084 Satisfied Customers
Experience: 35 years tax experience, including four years at a Big 4 firm.

PDtax 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
I am in the process of starting a business. Tax implications
I am in the process of starting a business. Tax implications and privacy are extremely important to me. It seems like LLC is the form of business entity I would like to use for my startup.With respect… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can I elect the de minimis safe harbor election to expense
Can I elect the de minimis safe harbor election to expense all items under $2,500 that relate to start-up expenses that I will have to amortize? Or is the de minimis safe harbor election only applicab… read more
abci168
abci168
Principal
27 satisfied customers
I am considering joining a startup company formed as a
I am considering joining a startup company formed as a multi-member LLC taxed as a partnership (Company A) which would include getting an equity stake in Company A. A friend suggested that I should fo… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 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
Purchased the assets and property of a software company with
purchased the assets and property of a software company with my business looking for someone with knowledge on LLC capital accounts … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
We're starting up a new business consulting company with US
Hi, We're starting up a new business consulting company with US operations providing services on business strategy, back-office transformation, business expansion/operations into new countries, and ne… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I was advised to move my NJ LLC to DE, when i was talking
i was advised to move my NJ LLC to DE, when i was talking about moving overseas permanently or very long time. My LLC does business just by having some websites and having online revenue such as ad re… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Lev, I have a question relating to taxes, IP and capital
Hi Lev, I have a question relating to taxes, IP and capital gains I was hoping you could answer: A friend and I created a software startup around 1.5 years ago. We produced a software product/source c… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Megan, 2 questions: 1. We've spent $10,000 to build new
Hi Megan, 2 questions: 1. We've spent $10,000 to build new foundations for our website. Can depreciate this expense over a period of 5 years? 2. Now, we want to invest another $10,000 to improve the f… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
We registered as a NV LLC and choose to pay corperate tax
We registered as a NV LLC and choose to pay corperate tax last year, we als registered as a foreign company in IL which is subject for IL corperate tax. let us say we have total 500K sales last year, … read more
Megan C
Megan C
Certified Public Accountant (CPA)
Master's Degree
8,655 satisfied customers
Morning Lev, I have a Single Member LLC, Schedule C, who
Morning Lev, I have a Single Member LLC, Schedule C, who transact business in various states - service (training) and products. Their one and only office is in Maryland. 1. If EE of LLC goes to anothe… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
How are website design/software costs accounted for? Two scenarios:
How are website design/software costs accounted for? Two scenarios: 1. A brand new company developing a website before it opens for business. 2. An established company starting website to increase bus… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
My WIFE and I operated an EVENT PRODUCTION COMPANY as a CA
My WIFE and I operated an EVENT PRODUCTION COMPANY as a CA : 'TOP BAND LLC' for several years and then CLOSED/TERMINATED the LLC properly after the 3rd quarter of 2009. Keep in mind we closed TOP BAND… read more
ezcpa
ezcpa
19 satisfied customers
The IRS allows you to expense expenditures if 1) usefull
The IRS allows you to expense expenditures if 1) usefull life is under 12 months OR 2) expenditure amount is less the internally determined capitalization limit Question: For a privately held LCC that… read more
Rakhi Vasavada
Rakhi Vasavada
Financial / Legal Advisor
Bachelor\u0027s Degree
1,812 satisfied customers
Hello, I created an Llc in Delaware with 2 partners. I
Hello, I created an Llc in Delaware with 2 partners. I am resident of the US. One partner is resident in Canada and the last one is resident in France. We do online business on Amazon. I ship from Mas… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
We have an S corporation (LLC) which is in the business of
We have an S corporation (LLC) which is in the business of developing and publishing software applications. It is owned 50%/50% by 2 shareholders. The company has been extremely profitable and we find… read more
CPAforHire
CPAforHire
Bachelor's Degree
67 satisfied customers
We are a startup company in software solutions. Our patented
We are a startup company in software solutions. Our patented software will be installed on a subscription basis to our clients. Can we get an ITC and take depreciation? It is the major component of ou… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
my husband owns an SCorp that created (code and programming)
my husband owns an SCorp that created (code and programming) an online music mixer software product for customer use and revenue generation. Before marketing to the general product, he sold all rights… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 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