Paying up front

[JFH]

Client is selling his business ($2,000,000) and owner financing for 15 years. He wants to pay all of his capital gains this year becasue he is afraid what might happen to the capital gains in the future. I see no documentation that states that you HAVE to report sale over the time financed (installment sales). I just want to confirm with you guys.

Thanks

JFH

[JFH]

I think I found my own answer - that is to elect out of the option of having the tax paid over a peiod of time.

JFH

[MAMalody]

Don't forget to see if the state you are in conforms to federal options. If they don't, you have a nice little nightmare on your hands for the next 15 years.

[JFH]

Thanks for the heads-up - I'll check what the Virginia laws are.

Thanks again

JFH

[Gail in Virginia]

In general, Virginia passes a law every January conforming to the federal taxation laws as of December prior year, with the exception of the bonus depreciation. There are some other areas of difference relating to farmers, and a few other things, but the option to elect out of capital gains should not be a problem in VA.

[taxxcpa]

Client is selling his business ($2,000,000) and owner financing for 15 years. He wants to pay all of his capital gains this year becasue he is afraid what might happen to the capital gains in the future. I see no documentation that states that you HAVE to report sale over the time financed (installment sales). I just want to confirm with you guys.

Thanks

JFH

I would think twice about reporting all the capital gains at once. Even if the tax rate increases, the burden would be spread over the years vs all at once. There is a time value of money and it might be a good idea to work out a worst-case scenario with some actuarial assumptions about interest rates, present values and future values and see if saving tax today is better than the compound interest that would be attained by holding off.

Since the actual calculations would be extremely tedious, I would use a 'quick and dirty' estimate.