- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Do you take into account original basis would be the positive taxable income that was generated over the years as a starting basis before sale?
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Sounds more like he sold, than gave. What exactly did he sell?
and ex marks the spot where those rocks and anvils hit me.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Father (sole prop - sch C ) sold client list to son and son in law whom formed a partnership agreement.
Changed name of company, and is now paying Father $2000 month based on agreed sale price. I do not know what the selling price is yet, meeting next week to discuss.
So do I sell his Sch C business on form 4797 or do installment sale?
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Let's see if I understand = "gives small carpentry business" and receives $2,000 per month in exchange for this gift, and "agreed to be paid for purchase would be their starting basis of new company."
I think you might start by clarifying some of the terms used in your question. https://www.thetaxadviser.com/issues/2014/apr/casestudy-apr2014-vm.html may help you to organize what you think might be the case and present it back here.
ex-AllStar
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
He sold the client list for construction work to son and son in law.
How can he gift it when they agreed to a selling price of business paying him $2000 month. How is that income treated on tax return or not at all?
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Gifts don't come with a price tag of $2000/month. Sounds like you have a taxable sale of the customer list.
and ex marks the spot where those rocks and anvils hit me.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
I agree. Just trying to avoid high tax bill. My consensus would be to put it on installment sale, based on possible calculation of his original basis.
Again, if he did not keep track of taxable income on SCH C, can we go back to all SCH C net income and add that up for his original cost basis, against the monthly income?
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
If he sold a client list, most likely he doesn't have any basis on the sale. Or did he sell more than the client list? What about the other business assets?
and ex marks the spot where those rocks and anvils hit me.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
No the guys have their own trucks and tools
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Would not the total purchase price be treated as a Section 197 intangible amortizable over 15 years?? Just asking.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
The son and partner do the business now as a new business, default to partnership. So the monies being paid to related party should be their capital investment basis, am I wrong here?
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
@Anglis wrote:
What I am looking for is what is the best way to treat the $2000 monthly income paid to father on his personal tax return. I don’t want to complicate this.
The son and partner do the business now as a new business, default to partnership. So the monies being paid to related party should be their capital investment basis, am I wrong here?
Are they paying $2000 monthly until somebody dies? You need to determine what the actual selling price is to calculate the gain. On the flip side, the payments aren't a capital investment. The debit side of the transaction is an asset (client list) and the credit side is a note payable. The monthly payment is purely a debt payment consisting of principal and interest.
and ex marks the spot where those rocks and anvils hit me.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
I will get more info this coming week.
So then the son and partner will not have a capital basis. So on the partnership side they can write that off as a debt noted payable.
Thank you.
- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Email to a Friend
- Report Inappropriate Content
Actually, they write of the cost of the client list by way of amortization every year along with the interest they pay on the note.
and ex marks the spot where those rocks and anvils hit me.