Recording Cost for Goodwill

Forum|Forum|5 years ago
September 29, 2020
3 replies
38 views

What cost of Goodwill should I record in Turbo Tax if buyer opted to use Goodwill instead of inventory sale? Can I use available inventory cost as Goodwill cost?

Anonymous

FYI

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
the purchaser's basis in the assets is determined only by the amount paid for the assets.

IRS INSTRUCTIONS FOR 8594

Generally, both the purchaser and seller
must file Form 8594 and attach it to their
income tax returns (Forms 1040, 1041,
1065, 1120, 1120S, etc.) when there is a
transfer of a group of assets that make up
a trade or business (defined below) and
the purchaser's basis in such assets is
determined wholly by the amount paid for
the assets. This applies whether the group
of assets constitutes a trade or business in
the hands of the seller, the purchaser, or
both.
If the purchaser or seller is a controlled
foreign corporation (CFC), each U.S.
shareholder should attach Form 8594 to
its Form 5471.

to me it seems totally illogical for a buyer to assign the "price" paid for inventory which would likely be deductible in one year to goodwill which cost is recovered over 15 years.

if one part submits the form and the other doesn't. it's likely the other will get a notice from the IRS. if the form is submitted and buyer and seller use different amounts for the classes of assets it's likely both will be audited.

edwardbuck1

Level 2

I am an S Corporation. I sold my business in 2020 in an asset sale. I was paid for good will and intellectual property and non compete covenants. How do I record these in my turbotax 1120s tax return? I was also paid for the assets. I am recording the assets as sales resulting in a 4797 form. Is this correct? I recorded the sale on form 8594.

JeffreyR77

Level 10

You will dispose of your assets in TurboTax Business by going to the Federal tab, Income, and then Dispose of Business Property and entering information for each asset sold:

The disposition of the assets will end up on Form 4797 and be reported on Form 1120S line 4. The disposition of the goodwill and intangibles will end up on Schedule D as a capital gain.

The intangible items would be recorded on Form 8594. Class VI would include intellectual property and non compete; goodwill would be recorded in Class VII. See this link: Asset Classes for Form 8594.

Form 8594 will be attached to the 1120S and the return will need to be mailed in. Ensure the 'Final Return' in H (1) is checked.