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Discussion:Selling Schedule C Business Assets: Selling A/R

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Discussion Forum Index --> Advanced Tax Questions --> Selling Schedule C Business Assets: Selling A/R


Discussion Forum Index --> Tax Questions --> Selling Schedule C Business Assets: Selling A/R

Newtaxguy (talk|edits) said:

March 2, 2014
Client is selling assets from his Schedule C business ... I say "selling assets" because he is selling the largest part of his business, but some activity will persist albeit in a substantially reduced form... he isn't selling the ENTIRE business.

I know where to report the sale of goodwill, inventory, and depreciable assets.

Where do I report the sale of accounts receivable? I understand that A/R gets reported as ordinary income. Is it more appropriately reported as income on the Schedule C itself or the 4797?

Thanks, TNTG

Ckenefick (talk|edits) said:

2 March 2014
Is your client cash basis or accrual?

Spell Czech (talk|edits) said:

2 March 2014
Do you intend to have your client pay SE tax on the gain from the sale of the A/Rs?

Ckenefick (talk|edits) said:

2 March 2014
I hope so, assuming it hasn't already been taxed.

Newtaxguy (talk|edits) said:

March 2, 2014
Cash basis client.

Ckenefick (talk|edits) said:

2 March 2014
Then you'd put it on Schedule C.

Newtaxguy (talk|edits) said:

March 2, 2014
Thanks Amigo

Spell Czech (talk|edits) said:

2 March 2014
Is the Section 1245 gain from the sale of the depreciable personal property subject to SE tax? How about the gain from the sale of the goodwill? And

Ckenefick (talk|edits) said:

2 March 2014
Is the Section 1245 gain from the sale of the depreciable personal property subject to SE tax?

I don't know. Please tell us...and please provide a cite other than an IRS Pub.

Southparkcpa (talk|edits) said:

2 March 2014
Agreed with CK, sale of AR is ordinary income.

Nilodop (talk|edits) said:

2 March 2014
No to 1245. IRC Sec 1402(a)(3)(C).

Spell Czech (talk|edits) said:

2 March 2014
Kudos, Lenny.

Ckenefick (talk|edits) said:

3 March 2014
IRC Sec 1402(a)(3)(C)

Ok. What about Section 179 recapture - what is cite for that one?

Nilodop (talk|edits) said:

3 March 2014
1245(a) and Reg. 1.1245-2(a)(3)(i).

Ckenefick (talk|edits) said:

3 March 2014
Do those citations reference Schedule C or self-employment tax?

Harry Boscoe (talk|edits) said:

3 March 2014
The instructions for Schedule SE and Form 4797 [Yeah, I know, I know] offer a logical but quite perverse scheme for the recognition of Section 179 recapture for self-employment tax purposes. But in twenty or thirty years of - I admit, quite sporadic and often under-motivated - searching of the Code and Regs, I've not been able to find an *authoritative* source for the forms-and-instructions treatment of this item.

The scheme in the forms and instructions seems to try to recover the income for SE purposes, (sort of like the deduction is "on loan" to the taxpayer until the depreciable asset is finally and really *disposed of*) and then, when the property is finally disposed of, it invokes the general rule that gain/loss on the sale or disposition of depreciable property isn't subject to SE tax. Of course, we know that the Section 1245 rules treat a sale of depreciable property with Section 179 recapture as if the recapture takes place in a vacuum, and the net Section 179/adjusted-for-depreciation-that-would-have-been-allowed basis in the Section 1245 asset gets restored before the "final" gain/loss is determined. My ability to describe this tortured process is somewhat limited by English being only my third or fourth language.

Ckenefick (talk|edits) said:

3 March 2014
I think if your searching was not sporadic, and was continual - like the IRS' work ethic per their Mission Statement - and if your searching was also overly motivated...you might end up with the same conclusion...

One does wonder if that 6,000 pound heavy vehicle is later contributed to a corporation, and annual personal use later exceeds 50%, how that would work? I guess we'd have to think about from 2 standpoints: (1) the personal use shows up on the guy's W2 (2) the personal use does not show up on the guy's W2.

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