Inventory Treatment when Selling a Business

[Hanko1]

I sold my business in 2019 and had more than $1,000,000 in inventory.  This was an asset sale, and the inventory value is listed on Form 8594.  Since the ending inventory must equal zero for the year on the balance sheet (and COGS calculation), do I show the asset as part of COGS for the year?

[Anonymous]

yes. and the amount for inventory on the 8594 (should be class IV) should be included with sales and then you have $0 ending inventory.   this should work automatically.     Beginning inventory + purchases less ending inventory ($0) will produce the correct cost of goods sold.  i'm assuming you have always reported year end inventories as an asset rather then expensing it.   

[Critter]

Let's make sure we are clear on the terms  ... inventory is not an asset ... you did not sell an asset you sold off your inventory.   The sale of the inventory is reported as ordinary income on the Sch C  and not as a sale of an asset on the form 4797.  

[Carl]

Let's simplify what the others are trying to say here.

The inventory is included in the sale I presume. I also assume that when you say $1M in inventory, that $1M is what ***YOU*** paid for the inventory.

So the first thing you will do is deal with the inventory to get your EOY balance to zero. In the COGS section you will show that you sold that inventory "at cost" for $1M.  That gets your EOY inventory balance to zero with no taxable income from the inventory. Then subtract $1M from your business sales price and that's what you sold the business for.

[Critter]

@Hanko1 

Did you even complete a form 8594 for you and the buyer ... if not  and you sold more than just the inventory you may wish to seek some local professional assistance. https://www.irs.gov/pub/irs-pdf/f8594.pdf

[Hanko1]

Thanks.  This resolved my question.