selling s corp on installment sale

[oceanlovin'ea]

New client called tonight to ask questions. He has an s corp that is a service business. He has a truck, tools he uses for the work and chemicals that he uses in the work. He is wanting to retire.
He is going to take a young man and teach him the business for 6 months. At that time if the young man proves capable to operate the business he will sell it to him. I do not think he plans to sell his corporation to him. He will sell the truck and equipment to him. The young man will open his own LLC. He will make payments to client for 4 years.

The first thing the client wants to do is to take his name off the corporation and leave only his wife's name on it. That is so the payments for the sale will actually be made to his wife. He is worried about his social security being affected. I told him since it would be sale of property and not wages, it shouldn't affect his social security benefits.

But he can give his portion of the company to his wife, I believe. Then we would sell the property. Does the s corporation have to remain open until the sale is completely paid off?

I am sure I will have more questions regarding this. But that was my immediate thoughts.

Linda

[S T]

What is the Age of the T/P

What is the T/P date of birth?

Is T/P receiving Social Security Benefits now?

Although I believe, I agree as far as an installment sale goes - which is not wages, and not earned income, if T/P is receiving SSA retirement - this would not affect his monthly benefit from SSA

It could affect the taxability of Social Security Reporting on the Form 1040 though.

More issues on changing the Corp ownership?

Sandy

[BOB W]

New client called tonight to ask questions. He has an s corp that is a service business. He has a truck, tools he uses for the work and chemicals that he uses in the work. He is wanting to retire.
He is going to take a young man and teach him the business for 6 months. At that time if the young man proves capable to operate the business he will sell it to him. I do not think he plans to sell his corporation to him. He will sell the truck and equipment to him. The young man will open his own LLC. He will make payments to client Qfor 4 years.

The first thing the client wants to do is to take his name off the corporation and leave only his wife's name on it. That is so the payments for the sale will actually be made to his wife. He is worried about his social security being affected. I told him since it would be sale of property and not wages, it shouldn't affect his social security benefits.

But he can give his portion of the company to his wife, I believe. Then we would sell the property. Does the s corporation have to remain open until the sale is completely paid off?


I am sure I will have more questions regarding this. But that was my immediate thoughts.

Linda

I see no reason for your client's worries, totally unfounded, SS is not an issue. The SCorp can elect upon dissolution to pass the note to the shareholder for collection. Having a joint return will have the same effect regardless of the owner of the note.

[oceanlovin'ea]

yes

Client will be 63 in May and he is going to start drawing social security early.

So the s corp would not have to remain open until the loan is paid off. They could go ahead and close the corporation and the loan would go to the shareholder(s) and become a personal installment sale. Is that correct?

Linda

[BOB W]

Client will be 63 in May and he is going to start drawing social security early.

So the s corp would not have to remain open until the loan is paid off. They could go ahead and close the corporation and the loan would go to the shareholder(s) and become a personal installment sale. Is that correct?

Linda

That's the way I understand it. Income must be subject to SS to be earned income. Even if they did have earned income subject to SS it can still be OK as long as it did not exceed ???? 12,000 ????.

When collecting SS some of it can/will be taxable even if no earned income. It is all based on AGI.