Tax Guru – Ker$tetter Letter

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Business Sale?

Posted by taxguru on March 10, 2007

Q:

Subject: Sales of business

Hi Kerry,
 
If we sold a business (C-corp) for $220k without realizing gain or loss.  $200K is for inventory & $20k is for goodwill. 
 
Which form should we use to report the sale?  On form 4797, there’s no section to report the sale of inventory of $200k.
 
Pls help us.  We’re filing form 1120-A.
 
Thank you very much for your assistance & wish you have a wonderful weekend.

 

A:

You need to be working directly with an experienced professional tax advisor because there are numerous critical aspects to this that you haven’t addressed and are obviously confused about. 

First is the issue of what was sold.  Did you sell your stock in the corporation to someone else?  If so, you need to properly calculate your cost basis in that stock and then report it on Schedule D or Form 4797 with your 1040.  If you are selling at a loss, you need to determine if it qualifies for the expanded loss deduction under Section 1244.  Was the full payment received in the year of sale or is it being spread out over a number of years?

On the other hand, do you still own the corp and it sold off its assets?  That’s reported on the 1120 and will also be affected by whether or not the full sales price was received in the sale year. 

There is no way you can properly handle this on your own.  You actually should have consulted with a tax pro prior to the sale.

Good luck.

Kerry Kerstetter

 

 

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