S Corp. Sale

[Bird Legs]

Client, sole owner, stockholder of an S Corp. recently sold all the inventory and
equipment of the Corp. Total selling price $50,000.
The buyer wants to allocate the sales price as follows:
inventory & equipment $25,000. Goodwill $25,000.
Question, can the amount allocated for goodwill be paid with a separate check
payable to the stockholder-owner or does it have to go into the corp. also?
The corp. is not going to be dissolved and will remain active holding land & building.
Thanks

[Bees Knees]

It depends. Why does the stockholder individually own goodwill outside the corporation? You can't buy goodwill from someone who doesn’t own it.

[Bird Legs]

Sale of Goodwill

The seller thought this might be a good way to get the cash personally, instead of
going through the S Corp.

[Bees Knees]

The corporation is the seller, not the stockholder. The stockholder has no right to the money, unless the corporation decides to distribute the money to the stockholder. That would be a transaction between the corporation and the stockholder, not the buyer and the stockholder.

[OldJack]

Question, can the amount allocated for goodwill be paid with a separate check
payable to the stockholder-owner or does it have to go into the corp. also?

Assuming $25,000 is a reasonable price for the inventory & equipment the remaining is allocated to something else such as goodwill. The S-corp owns and sells Goodwill with capital gain passed to the individual for taxes. However, a consulting agreement or non compete agreement can be made with the individual and paid direct to the individual bypassing the corporation, but with a S-corp whats the point as its all taxable on the 1040? The point is the individual pays SE tax if paid direct to the individual.