Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

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: 1 month 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 1 month ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,818
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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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 1 month 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
Ask PDtax Your Own Question
PDtax
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,818
4,818 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

1,312 satisfied customers

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

Richard

Richard

Tax Attorney

4,362 satisfied customers

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

Robin D.

Robin D.

Senior Tax Advisor 4

14,120 satisfied customers

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

Megan C

Megan C

Certified Public Accountant (CPA)

8,652 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.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
What would the rate of capital gains tax on income property
what would the rate of capital gains tax on income property held for 25 years by an owner who of late had and will have income of less than20,oooIt is also my understanding we (my brother and I) are e… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
Do I pay capital gains on rental property sold in 2017 if I
do I pay capital gains on rental property sold in 2017 if I bought a house in 2018? … read more
abci168
abci168
Principal
27 satisfied customers
How do you calculate the state income tax, the local income
Hello, how do you calculate the state income tax, the local income tax, and the federal income tax withheld? For the local income tax, do just multiply the state wages by the county tax rate? For exam… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What is the capital gain tax for a corporatized farm land
Hi What is the capital gain tax for a corporatized farm land sale … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have underreported depreciation on an asset because I have
Hi,I have underreported depreciation on an asset because I have misclassified the asset under the wrong asset class (it should be 15 year qualified restaurant property and I have it as 39 year propert… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have underreported depreciation on an asset because I have
I have underreported depreciation on an asset because I have misclassified the asset under the wrong asset class. How do I go about adjusting this on the next tax return? I do not want to amend last y… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
736 satisfied customers
How do I figure out depreciation for my income tax return? A
How do I figure out depreciation for my income tax return? A friend recently died owning tillable and productive farmland with no buildings. The farmland was appraised by a licensed appraiser. He did … read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
736 satisfied customers
How do I report rental property sold for income tax in 2017?
How do I report rental property sold for income tax in 2017? I bought if for 50k and sold if for 50 k.… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
When a partner contributes depreciated rental property to a
Hi, when a partner contributes depreciated rental property to a partnership, does the partner report anything on partner's individual tax return? Such as a transfer or disposition on Form 4797? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If I don't have any ordinary income, only social security
Second opinion] if I don't have any ordinary income, only social security and have a long term capital gain from the sale of a business, how would it be treated for tax purposes? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If I don't have any ordinary income, only social security
if I don't have any ordinary income, only social security and have a long term capital gain from the sale of a business, how would it be treated for tax purposes? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,316 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
If I am reviewing my 2016 Income Tax Returns, which are
If I am reviewing my 2016 Income Tax Returns, which are itemized. (Married, 2 children)Add Line 40 (Itemized Deduction) + Line 42 (Exemptions ($4050 x 4 = $16,200)) which I would subtracted from Line … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,316 satisfied customers
FOR GUILLERMO: What line on the 1040 income tax return is
FOR GUILLERMO: What line on the 1040 income tax return is used to determine the sponsor's income for Form I-864? Is it line 22: TOTAL INCOME? Or, line 37, ADJUSTED GROSS INCOME?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Is income from an LLC passed through to personal tax return
Is income from an LLC passed through to personal tax return considered earned income, enabling me to contribute to a traditional IRA?… read more
abci168
abci168
Principal
27 satisfied customers
I'm working to understand capital gains tax for California
I'm working to understand capital gains tax for California property purchased 4 years ago. It's a primary residence, purchased 4 years ago for $385k with $285k principle outstanding. Expected sale price of $630k … read more
abci168
abci168
Principal
27 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question regarding the ordinary income tax. If the
Hello, I have a question regarding the ordinary income tax. If the ordinary income tax due is negative does that apply anywhere? This pertains to the sale of an S corp .business. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 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