A client has come to me asking for advice/help with the sale of his business. I only do his personal taxes, but he has provided copies of the corporation’s returns for the last three years for my review. Client is unhappy with the accountant who prepares his business return, so that is why he is asking for my help. He was planning to sell the stock of the corporation, which I thought I had pretty much figured out; but now, the plans have changed and he is selling the assets – so I need some help on this.
Here are the details on the sale:
Corporation has rather large NOL from prior years ($50,000). All fixed assets are fully depreciated. Business owes $20,000 to bank on line of credit loan and around $15,000 to client as shareholder loan. He is selling for around $45,000 – with $20,000 down and rest received in installments. Owner plans to use the down payment to pay off the bank loan since buyer will not assume the debt. Basis in stock is $7,000.
Now for my questions:
1. Gain on the sale of fixed assets will first be ordinary income for depreciation recapture and then capital gain for any amount over that, right? If so, will the NOL negate these gains on the final 1120 for the corporation?
2. How much gain on the sale should be reported – the net amount he will receive after paying the bank and his loan minus stock basis (or some other amount)? How will this be handled under the installment sale since he will not get enough cash up front to pay off both amounts?
3. I know form 8594 will need to be filed with the corporation’s return, but does anything else need filed if “final return” is marked on the 1120?
I think that is it for now. Sorry to sound so clueless, but this is the first time I have run across a business sale. If I am in over my head, I will just tell my client this and have the accountant who does his business return handle this.
Thanks
Here are the details on the sale:
Corporation has rather large NOL from prior years ($50,000). All fixed assets are fully depreciated. Business owes $20,000 to bank on line of credit loan and around $15,000 to client as shareholder loan. He is selling for around $45,000 – with $20,000 down and rest received in installments. Owner plans to use the down payment to pay off the bank loan since buyer will not assume the debt. Basis in stock is $7,000.
Now for my questions:
1. Gain on the sale of fixed assets will first be ordinary income for depreciation recapture and then capital gain for any amount over that, right? If so, will the NOL negate these gains on the final 1120 for the corporation?
2. How much gain on the sale should be reported – the net amount he will receive after paying the bank and his loan minus stock basis (or some other amount)? How will this be handled under the installment sale since he will not get enough cash up front to pay off both amounts?
3. I know form 8594 will need to be filed with the corporation’s return, but does anything else need filed if “final return” is marked on the 1120?
I think that is it for now. Sorry to sound so clueless, but this is the first time I have run across a business sale. If I am in over my head, I will just tell my client this and have the accountant who does his business return handle this.
Thanks
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