Never done one before, Please help!

[Tax Prep by Deb]

I am working on a return for one of my clients. He purchased an existing business, a sandwich shop for $41,043.50. There was no building involved, it was just the established business in a rented building. He did state that some of this included the equipment but most of it was just for the established location.

How do I show this cost? The business is a schedule C business. Most of my business returns I prepare are for people already established or who start their own business from scratch. So I'm not exactly sure were this figure goes on the schedule C or if it even goes.

Any imput would be greatly appreciated!

Deb!

[BulldogTom]

The first thing you need to see is the sales agreement. If there is no breakout of the sale of the equipment and the goodwill, then you will have to list all the equipment at FMV, and subtract from the sales price to get the amount of goodwill. Goodwill is a §197 or 195 (I forget which one) intangible asset amortized over 15 years.

Obviously, your client wants as much asset cost as possible to depreciate and as little goodwill as possible. Get good estimates of the FMV of the used equipment. An outside estimate is better than the numbers the client will pull off the ceiling.

Tom

Lodi, CA

[kcjenkins]

Was a Form 8594 done for the purchase? There should have been one, although it's not nearly uncommon enough for there not to be one. Still, you should do one, and include it in the return. Whether it matches what the seller reported is not your problem.

You will put the depreciable items in the Asset entry, of course. Amortize items also. Inventory purchased would go into page two under Purchases, etc.

[OldJack]

a sandwich shop for $41,043.50.Deb!

Its not likely that the sale price got down to the 50 cents without some list of what was being sold. You have to have them give you the list.

[Tax Prep by Deb]

Thanks,

I will contact him and have him fax over the info in the morning. So the goodwill then is entered on the asset worksheet, then I would choose amoritization, then start up cost?

Deb!

[OldJack]

Thanks,

then I would choose amoritization, then start up cost?

Deb!

Correct

[kcjenkins]

Do the 8594 and it will help you determine how much goes where, Deb.