Selling a Business

[charluzze]

I sold one of my businesses to a person who can't afford to pay the total price in a lump sum but who is paying me a fixed amount each year towards the total price, for the next 5 years. I think you call this installment payments? I use TTAX "Home and Business" and am not sure where to enter this income; I'm looking to characterize it as capital gains instead of "earned" income.

[ErnieS0]

Yes. Payments received over multiple years are called installment sales.

Here’s how to enter an installment sale in TurboTax:

1. Type installment sales in Search in the top right
2. Select Jump to installment sales
3. On Any Other Property Sales? Select Sales of real estate, cars, or anything else for which you receive payments over two or more years.
4. Enter the rest of your info

You will report the sale every year. TurboTax will figure out your gross profit percentage this year. That’s the taxable portion of the payment. The other part is principal paid, much like a mortgage.

[charluzze]

Thanks, but you mentioned "Property" sales. Are we sure that selling a business is characterized as a sale of "property"? For example, a business contains a wide range of assets, some tangible and others intangible; it's not as simple as selling a car or a home. So looking to hear that you're certain about entering on "Any other property sales" or would you recommend I do further research?

[ColeenD3 · Accepted solution]

You enter the sale exactly as @ErnieS0 described. Since you sold "a wide range of assets", you may need to file Form 8594.

Per the IRS, The purpose of filing the form is "Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser's basis in the assets is determined only by the amount paid for the assets."

This form is not available for electronic filing, so you will have to mail in your return.

From @SusanH:

The sale of a business is comprised of the sale of individual physical assets (if any) and the sale of intangible assets such as goodwill. You will need to tell TurboTax you've sold the business and then record the sale of any assets or goodwill.

To tell TurboTax you've sold the business

• Go into business income and expenses and edit your business.
• Click on update your Business Profile
• Scroll down to Disposed of Business in Current Year and click edit
• Indicate that you sold your business in 2015

To record the sale/disposition of goodwill and any other assets

• Regarding the Goodwill that was previously entered as an asset in a prior year;
• Edit the asset and at ‘Tell Us About This Asset’, indicate the item was sold, retired etc and enter the date you sold your business.
• At ‘Enter Asset Sale Information’ enter the Sales Price (if any) that was allocated towards Goodwill. If none was allocated towards Goodwill, enter zero.

[Rick19744]

Additionally, you need to take a look at the form 6252 and walk through the mechanics manually.

What you will notice, is that all depreciation must be recaptured in the initial year of sale.

This catches some individuals off guard as you will owe tax on this component while you may not have received sufficient cash to pay the tax.

[charluzze]

Thanks!

[charluzze]

Thank you!