I need to report the sale of my business. How do I do that?

What kind of business did you sell ?   What tax form did it file ?  What did you sell exactly ? Inventory? Assets ? 

 

https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business

I sold my dental practice.  Assets sold include fixed assets, goodwill, a non-compete clause, and factored accounts receivable.

Single member LLC? Multi-member LLC? S-Corp? C-Corp? Partnership? Sole Proprietorship? It matters.

Sole proprietor.  Asset sale including goodwill, fixed assets, and non-compete.  Installment sale over two years.  I found many of the forms in my Turbo Tax Home and Business, but not all.  

Hopefully you received some professional guidance during the sale process.  I will provide some comments:

• A form 8594 needs to be completed and both the seller and buyer need to attach this to their respective tax returns for the year of sale.  Obviously, these forms MUST agree.
• The allocation of the purchase price essentially follows the form 8594 from Class I to Class VII.
• Once you have agreed upon the purchase price allocation, then you will need to use the information from the form 8594 to "dispose" of your assets within your Schedule C.   Since you most likely had more than one asset, whatever is reflected in Class V will then need to be further allocated among all the assets sold.
• Hopefully your covenant not to compete was a separate agreement or at a minimum specifically detailed within the purchase document.  
• You noted that this is structured as an installment sale.  Keep in mind as you prepare the installment sale document (form 6252) within your 1040 that ALL depreciation recapture is recognized in the first year.  This catches many sellers off guard in that they may not have received sufficient proceeds to cover the tax related to this component.  You should be fine if it is only two years as you noted.
• Depending on the $$ involved, you may want to consult with a tax professional

In 2020, I sold my dental practice and would like more specific information on the disposition of assets.  There are many small business owners asking how to report the sale of their businesses on TurboTax and few satisfactory answers.

 

This is not an installment sale.  The entire transaction took place in Sept, 2020.  I have a 8594.  These are not real numbers but should be useful to illustrate what needs to be done by anyone kind enough to reply: Class I,II,III are all zero.  Class IV,V are $10,0000.  Class VI,VII combined are $100,000.

 

Specifically, how are these numbers moved to schedules C,D.  What other forms or schedules are needed?

 

Thanks!

we need to know the form of the business. - sole proprietorship or single-member LLC, S-corp, C-corp, or other(?) - specify.

 

Sole proprietor

Ok ... so let's look at the form 8594 instructions ...  

 

Class IV assets are

stock in trade

of the taxpayer or other property of a kind that would properly be included in the

inventory

of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business.

 

Class V assets are

all assets other than Class I, II, III, IV, VI, and VII assets.

@saycanyouc 

 

I agree with @Critter-3 and you will be using Schedule C, Schedule D, and Form 4797.

 

More importantly, you should consult, in person, with a local tax professional with respect to reporting this transaction.

As is the case with most tax transactions, regardless of the size of the transaction, the tax implications can get complicated.  Here are my comments based on your facts:

• You reflect class IV and V as one number.  These are two different lines on the form 8594, and as such, should each have their own specific $$ amount.
• You should complete your Schedule C as you would normally up to the date of the sale.
• Once completing your schedule C you will then know what your ending inventory is; assuming you have any inventory.
  • At this point you will reflect the proceeds received and shown on form 8594 class IV along with your ending inventory on form 4797 part II (ordinary income).  The amount on the 8594 is the proceeds or sales price and your ending inventory is the cost basis.
  • This component is shown here as the sale transaction was not part of your normal business, and as such, is not a part of the Schedule C.
• Now you have class V assets.  You will need to allocate the amount reflected on form 8594 among all the assets.  A typical method is to allocate the proceeds based on the original cost.
  • From here, you will need to go into your fixed asset section and show the assets as disposed with the proceeds received as just noted.
  • TT should then reflect these items on the appropriate form; most likely various places on form 4797.
• For your class VI and VII assets, unless you actually purchased an intangible of some sort, your basis in these assets will be zero.  These assets will then be reflected on form 8949 which will then carry to Schedule D.

I'm still not fully getting it.

 

I do not report inventory as an asset from year to year.  I don't sell anything tangible, per se, I provide service.  The class IV items are consumables, parts and instruments that constantly turn over in the provision of those services.  The class V items are heavy equipment and furnishings that have been 100% depreciated.  The class VI, VII is goodwill.

 

The responses speak to disposing of assets.  These are assets but have not been shown as inventory or as items of value on hand on a tax return in years.

 

Does this change anything?

What is the fixed asset section?  How do I move a new asset, the class V property, to the new asset section? How do I then show it as sold from the asset section?

@saycanyouc 

 

First I highly recommend you seek local professional assistance for this tax year so you do it correctly ...

 

The class IV items are consumables, parts and instruments that constantly turn over in the provision of those services.  Then this is simply reported as income to the business. 

 

 

The class V items are heavy equipment and furnishings that have been 100% depreciated.  If these are fully depreciated then if you still have the listed as assets in the program you will sell them off in the asset section ... if not you can either re enter it as an asset or use the sale of business property later in the interview. 

 

The class VI, VII is goodwill.   You did not mention these categories in the original post ... if you have goodwill which has not been listed as an asset in the past then you report this portion of the sale in the sale of business property as already mentioned. 

Sale of Business Property section in the program (TurboTax Home & Business).

 

Once again, I will reiterate that sitting down with a tax professional where you can have a one on one discussion would be significantly better.  We have very limited information or understanding of the business.

As a follow-up to your response:

• As stated previously, class IV and V items are handled differently and you have not indicated what that split is.
• We don't know how you have handled what you are calling "consumables".  
  • Are these expensed when purchased?
  • Are these sold as part of your services?
  • Without a clear understanding of these items, it is not possible to provide direction as to where these go on the tax return.
  • As noted in bullet one, the purchase price allocated to these items is important.
• Other responses have shown where to address class V property within TT.
  • Even though the equipment is fully depreciated, you will need to allocate the value associated with the class V property to all the assets.
  • You will need to indicate in TT what depreciation has been taken.
  • You will have ordinary income recapture to the extent of all depreciation previously taken.
• Class VI and VII property will be treated the same. 
  • As stated previously, unless you purchased either an intangible or goodwill in a separate transaction, this category will have a zero basis.
  • As stated previously, these assets will be reported on form 8949 which will then flow to Schedule D

What if the company is an S-corp? Specifically as it relates to Class VI and VII (goodwill) assets?
Where does that sale show up on the s-corp return?
Thanks!

Also, what date is entered for "date acquired" when it comes to Goodwill?

Thanks!

If you sold off goodwill then you will enter it as an asset to be sold off using the sale date as the "aquired" date. 

When I do that, it wants to treat it as short term gain and treat it as operating income instead of capital gains.

Do I force 4797 section to LT?

Sorry I'm sure this is basic but it's the first time selling goodwill.

Thanks!

Goodwill when entered as an asset in a business sale can be any date longer than 1 YR to establish it as Long term capitol gain

You simply enter a date that is longer than one year.  If, as in many cases, you actually created the goodwill that created this saleable asset, in your business, it actually begins on the date you began business operations. As long as you get long term treatment, the date can be any date that represents more than one year from the sales date (one year plus one day).  Then TurboTax will know to treat it as a long term transaction, providing special capital gain tax rates.

 

This will eliminate you forcing any section on Form 4797.

I have Turbo Tax home & business and would like to locate schedule D to report capital gains I was paid for the sale of my business.  I don't see anything referring to schedule D capital gains income.  Looking for some direction as to where to locate the form or where to enter my information.  Thank You!

Whether Schedule D will come up depends on how the sale was reported and what type of sale it was. Generally you will have to enter the transaction yourself @charlie2101.

 

1. Type schedule d in Search in the top right
2. Select Jump to schedule d and follow the prompts

Rather than Schedule D, it's possible you should enter the sale of your business as Sale of Business Property
 

1. Tap the Business tab
2. Go to Less Common Business Situations
3. Start Sale of Business Property

For more info about business sales see Sale of a Business