Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Tax Aspects of Selling a Business
The sale of a sole proprietorship is not the sale of a single asset; it is the sale of a group of assets that make up the business. For tax purposes, each asset in the group is treated as being sold separately. Gain and loss for each asset is computed separately.
Section 1231
Real or depreciable business property held over one year before being sold are subject to special tax treatment under section 1231. A net section 1231 gain is taxed at the lower long-term capital gains rates while a net section 1231 loss is fully deductible as an ordinary loss and not subject to the annual $3,000 loss deduction limit on capital losses.
- Form 4797 is used to report sales of business property.
- The seller files Form 4797.
- Form 8594 is used to allocate the selling price to property transferred to the buyer and to report the sale and purchase of a business to the IRS.
- Both the seller and buyer of the business must file Form 8594 with their annual income tax return.
When Does a Group of Assets Constitute a Trade or Business?
A group of assets constitutes a trade or business if either of the following applies:
- Goodwill or going concern value could, under any circumstances, attach to the assets.
- The use of the assets would constitute an active trade or business under Section 355 of the Internal Revenue Code.
- Section 355 deals with the distribution of stock and securities of a controlled corporation.
Goodwill
Goodwill is associated with a company's good reputation in terms of the products it sells, the services it performs, and it's standing in the community. It is tied to the ability of a business to continue doing business with its existing customers and to attract future customers.
Goodwill is an intangible asset that may only be acquired as part of the acquisition of a business. (You can't simply add goodwill to your ongoing business to bulk up your balance sheet. As state previously, goodwill must be purchased as part of an acquisition.) Goodwill is a section 197 intangible whose value is amortized over 15 years by the purchaser of a business.
Goodwill generally represents the excess of the price paid for a business over its net asset value (also called book value).
Going-concern Value
Going-concern value is the value attributed to a business entity as an on-going enterprise. Going-concern value focuses mainly on the ability of the company's assets to generate a return on investment(ROI) and not simply goodwill.