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

[Critter]

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

[ccheath54]

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

[Carl]

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

[ccheath54]

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.  

[Rick19744]

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

[saycanyouc]

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!

[Mike9241]

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

[saycanyouc]

Sole proprietor

[Critter-3]

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.

Note.

 

Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business (defined earlier) are generally Class V assets

SO FOR THE CLASS IV ...  that is simply a sale of inventory so it goes on the Sch C as ordinary income.  Nothing more than that.  

AND FOR THE CLASS V ...  you will sell off the assets you have on the books.  Theses are usually listed as assets and have been depreciated.   

[Anonymous_]

@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.

[Rick19744]

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.

[saycanyouc]

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?

[saycanyouc]

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?

[Critter-3]

@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.