"if the business created the goodwill, such as a license, a customer list, brand name, etc, the asset will be considered a capital asset and will be subject to capital gains tax to the s-corporation. The asset will have zero basis if it is self-created"
The term “goodwill” refers to that intangible asset that comes into play only when a company is planning to acquire another company and is willing to pay a price that is significantly higher than the fair market value of the net assets of the company. In short, the goodwill can be seen as the difference between the purchase price and the fair market value of a company’s identifiable assets and liabilities.
The calculation of the goodwill equation is done by adding the consideration paid, the fair value of non-controlling interests, and the fair value of previous equity interests and then deducting the fair value of net assets of the company.
The goodwill calculation method is represented as,
Goodwill Formula = Consideration paid + Fair value of non-controlling interests + Fair value of equity previous interests – Fair value of net assets recognized.
Can you elaborate why the self created goodwill will have a zero basis?
