Retainer for services to an LLC

[levarieceneu]

My wife is the sole owner of an LLC, which she is trying to sell. IN 2024 she paid a retainer to an agency that is supposed to find a buyer for my wife's LLC. Do I report this retainer as a business expense on the Schedule C of her LLC which is part of our 2024 tax return?

[SabrinaD2 · Accepted solution]

In general, the retainer paid to an agency for finding a buyer for a business is not considered a business expense and should not be reported on Schedule C.

• Business expenses should be ordinary and necessary for running the business. A fee to sell the business is typically considered a cost of sale and thus a capital expense. 
• This expense would be deducted from the sales proceeds when calculating capital gains or losses.

Guidelines

• Capital Expenses: Costs incurred to sell a business are treated as capital expenses. For more information, refer to the IRS guidelines on the sale of a business.
• Schedule C Instructions: For general information on what can be reported on Schedule C, see the IRS Instructions for Schedule C

[levarieceneu]

Thank you for your expert advice. So far no buyer gas been found, and the contract with the agency that received the retainer will expire in July 2025. If this happens, is there a way to report the retainer as a loss?

[RobertB4444 · Accepted solution]

If the business is not sold then the retainer will become an expense.  It will - at that point - be entered into the books as a professional fee since I assume it will not be returned to you.  

@levarieceneu