close of business

[POCAHONTAS]

client had craft business since 2005 and made a loss every year. In 2008 barely sold anything and decided to not sell any more. So for 2008 I prepare a schedule C and write "Final Return" on it. But she still has inventory left and some of her small assets which she depreciated, what does she do with those? she only has to report those items if she sells them right? and if she sells the inventory in 2009, would that be reported on 1040 line 21 but if she sells her assets where would they be reported???

first time I have come across this situation so thanks for any help

[erchess]

I think

that she gets to claim the rest of the depreciation in her final year. Then if she sells any item for more than its reserve or salvage value she has income to report in that year on F4797. I would say that if she sells remaining inventory in some future year that could be reported on Sch D if a gain or not reported at all if no gain just as with any other personal property. Basis for gain or loss would be an item's proportional share of the end of year inventory. It's late and I may not be thinking straight but that's my thinking at the moment.

[POCAHONTAS]

thanks erchess, but could she report the rest of her inventory on line 21 as hobby income and loss on schedule A????

I also have an owner operator truck driver who may sell his truck (which has been depreciated the last couple of years) in 2009. Now, would he report the sale of the truck also on schedule D.

Thank you so much for all your help, I work out of my home and don't have any one else I can ask, so this forum is of great help to me. Sometimes I may know the answer but I just like to confirm by asking you guys, to make sure I understood what I read.

[erchess]

I don't think it would be correct to call the sale of inventory left over from a business "hobby income"". Even if you did go for this treatment only the expenses up to the amount of income would be allowable on Sch A and would be subject to the 2% of agi haircut. Therefore your proposed treatment would be worse for your client.

Your truck driver would report the sale of his truck on F 4797. I don't remember offhand whether that carries to Sch D or straight to the 1040.

[ChEAr$]

close of business

1. inventory. Remember, ending inventory is still valued at cost, having never been taken
as a tax deduction. If in the future inventory is sold at a gain, that will be a gain to be
reported; sale price in excess of cost. However if sold for less than cost, best I recall
is that it's a capital loss for schedule d. At least that's the way I did it some time ago.

2.business assets. Take a pro rata amount of depreciation for the year of closure. For
instance if business closed March 31st, then 3/12 of yearly depreciation (see TaxBook)
Then the remaining (tax) book value is her basis and is used should she ever dispose of
them. If a gain, taxable income; if a loss, non deductible personal loss.

[erchess]

Thank you Harlan

for the correction re the depreciable assets.

[POCAHONTAS]

thanks everyone

finally got a couple of minutes, so thank you everyone for your help