Level 4

Question

Business sale income and expense filing.

Forum|Forum|5 years ago
February 3, 2021
20 replies
44 views

I have 2 clients, a father and son. They own and run a small information business in the father's home. In the end of 2020 the son bought out the father's share of the business. The terms of the sale are as follows; $200,000 sale price 20% flat rate simple interest = $240,000 to be paid over 10 years. There is no "physical property" involved in the sale, the son is still going to use the father's home as the office and all computers etc. where included in the sale agreement. Both have always reported the income on Schedule C.

The question's...

Where does the income get reported on the father's tax return?

Where does the expense get reported on the son's tax return?

What forms need to be filed with the IRS and by whom?

Thanks!

ProSeries Professional

This topic has been closed for replies.

L

linette

Level 6

You state no physical property and then also state computers etc.

Look up sale of business intellectual property (specifically goodwill) and see what you find and what you believe to be the case with this deal. This should tell you where to report it.

sjrcpa

Level 15

There is no "physical property" involved in the sale

all computers etc. where included in the sale agreement

Computers are physical property.

This is a sale of business assets by the father. Both parties should agree on the breakdown of the sales price into categories such as:

Fixed Assets

Accounts Receivable

Goodwill

Accounts payable assumed

Etc. They each complete Form 8594(?)

Then the sale of each one gets reported appropriately-Sch C, Form 4797, Sch D/8949.

The more I know the more I don’t know.

F

FTPhilAuthor

Level 4

This can be deemed as Class VII - "Goodwill", I'm good with that and so are they. The father's income is taken care of with the 8594 and 4797. The son also completes the 8594, but where does he recoup the expense of buying the business? He is paying the father $2000 a month of which $400 is interest. The 4797 is for income, not expense. Also, does the son need to give the father anything other than a 1099-INT?

Thanks again!

qbteachmt

Level 15

"where does he recoup the expense of buying the business?"

Well, that's not Expense. That is the difference between expense and investment, or Asset. Goodwill is an intangible Asset, to be amortized per the regulations that apply.

"He is paying the father $2000 a month of which $400 is interest."

That's the debt amortization; not the Goodwill.

Don't yell at us; we're volunteers

qbteachmt

Level 15

"Where does the expense get reported on the son's tax return?"

Make sure you understand the differences between the assets, liabilities, the interest, and anything that is actually expense. Cash Flow isn't always expense.

Don't yell at us; we're volunteers

qbteachmt

Level 15

This post has been deleted.

@Nickolaso

You seem to be Spamming this software users' forum. That's been reported.

Don't yell at us; we're volunteers

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