Writing Off A Business

Today TaxMama hears from Bill in the Tax Parlor who asks, “How do you write off the purchase price of an operating business?”

Dear Bill,

I’m very tempted to give you a rather flip answer – It depends!

A lot depends on how you and seller defined what you are buying. Did you each sign a Form 8594 – Asset Acquisition Statement? That defines how much of the purchase price is meant to be allocated to each component. For instance, to furniture, fixtures, equipment, inventory, cash equivalents, etc.

If you did that, then you can write off those parts of the business that are depreciable or amortizable – furniture, equipment, goodwill, escrow costs.

If you didn’t each sign it and submit the form through escrow…it’s a bit harder to define how to write off the components.

Did you buy the overall business?
Or components of the business?
Or did you buy 100% of the stock in a corporation or S-corporation?

Each of those kinds of purchases would have different tax treatments.

See, you need to meet with a good tax professional in your area, who can take a look at your purchase agreement and find the best way to use the various tax laws in your favor.

And remember, you can find answers to all kinds of questions about new businesses and all kinds of other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]

To make your comments, please visit TaxMama’s Parlor at TaxTwist.com.

  • Ask TaxMama :: Where taxes are fun and answers are free
  • TaxTwist.com :: Where TaxQuips will be moving & You can add your comments

File Download (1:37 min / 0.4 MB)

Leave a Reply