Convert to Personal Use

[Lion]

Schedule C business closes, taxpayer keeps remaining inventory, assets, etc., converts to personal use.

Inventory: I remove for personal use, yes?

Depreciable Assets: I stop depreciation, but they are not sold or disposed of, still owned. So, taxpayer has them at their current book value that will not come into play unless she sells any of them at a later date, yes?

License Agreement that was being amortized over 180 months: Treated the same as above assets, or can we take the remaining amortization in current year?

[ChEAr$]

Schedule C business closes, taxpayer keeps remaining inventory, assets, etc., converts to personal use.

Inventory: I remove for personal use, yes?

Depreciable Assets: I stop depreciation, but they are not sold or disposed of, still owned. So, taxpayer has them at their current book value that will not come into play unless she sells any of them at a later date, yes?

License Agreement that was being amortized over 180 months: Treated the same as above assets, or can we take the remaining amortization in current year?

Remove assets? Yes, while closing the books, assuming a set of books IS kept, costs and accumulated depreciation, (not necessarily same as tax treatment) is removed with difference to "draw".
Same with cost of inventory.

However, the license agreement is worthless at this point, so it's a tax loss.

[Roland Slugg]

Schedule C business closes, taxpayer keeps remaining inventory. I remove for personal use, yes?

Correct. In the "cost of goods sold" section of Schedule C subtract the withdrawn inventory from purchases. Than can result in a negative number.

Depreciable Assets: I stop depreciation, but they are not sold or disposed of, still owned. So, taxpayer has them at their current book value that will not come into play unless she sells any of them at a later date, yes?

That's also correct. However, there is recapture of amounts expensed under §179 for any assets that have not reached the end of what would have been their recovery period. Any amount so recaptured becomes the basis for that asset.

I have not seen rules regarding how much depreciation to take in a going-out-of-business situation. The usual half-year convention may not apply, since the assets were not sold. If the business is in existence for all or almost all of the year, I would take a full year's depreciation. If closed down around mid year, or sooner, I would take a half year's depreciation.

License Agreement that was being amortized over 180 months: Treated the same as above assets, or can we take the remaining amortization in current year?

That's a little tricky. If the owner abandons the license, he should be able to take an abandonment loss deduction. If he keeps it for later use, sale or transfer, one approach would be to suspend the annual amortization. But that begs the question, when does the owner get to deduct the unamortized cost? If the license is retained and may be reused or sold some day, it might be correct to continue amortizing it, deducting 1/15th of its cost on Schedule C each year. I'm really not sure and have not attempted to research this issue.

[Lion]

Thank you both. My client did make some things easy for me by closing her business bank account 31 December 2011 and notifying CT that their final sales & use tax return covered the period ending 1 January 2012. And, we never took 179 or any bonus depreciation. I'm just concerned about the license agreement. I have something in the back of my memory about taking the rest of the amortization in the year the business closes, but I can't find it. I think it goes back to an old HRB course, but I searched my textbooks without success. I also tried Master Tax Guide and, of course, TTB as well as J.K. Lasser's pro edition.