Selling Your Business

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Tax Forms Used When Selling a Business

Tax Forms Used When Selling a Business

The following tax forms are typically used when selling a business:

  1. Form 8594, Asset Acquisition Statement (instructions)
  2. Form 4797, Sales of Business Property (instructions)
  3. Schedule D, Capital Gains and Losses (instructions)
  4. Form 6252, Installment Sale Income

1) Form 8594 is used to report the sale and purchase of a group of assets that constitute a business.

On Form 8594 the total selling price of the business is allocated to the various asset classes transferred in the sale using the residual method.

There are seven asset classes indicated on Form 8594.

The seller and purchaser must file Form 8594 with the IRS in order for the IRS to know:

  1. The purchaser's depreciable basis in the assets transferred, and
  2. How the seller determined gain or loss.

Both the purchaser and seller file Form 8594 with their own annual individual income tax return.

The values entered on the seller's and purchaser's copy of Form 8594 must be identical.

2) Form 4797 is used to determine gains and losses on the sale of business property.

If you have more properties than the form can accommodate, use additional forms.

Once you enter the losses and gains in the appropriate parts of Form 4797, follow the instructions printed on the form to see how to report gains and losses.

3) Schedule D is generally used to report long-term and short-term capital gains and losses on the sale of securities (e.g., stocks and bonds). In addition, a net gain on Section 1231 assets from Form 4797 is generally entered on Schedule D as a long-term capital gain.

UPDATE for Tax Year 2011 - New IRS Form 8949:

The IRS has created a new form, Form 8949, Sales and Other Dispositions of Capital Assets. Use it to report the sale or exchange of capital assets. In prior years, these transactions were reported directly on Schedule D. Gains and losses are categorized on Form 8949 as short-term and long-term and the totals from are carried to Schedule D. In other words, Form 8949 is the detail schedule while Schedule D is the summary schedule for gains and losses on the sale or exchange of capital assets.

  • Capital assets are assets used for personal purposes, pleasure, and investment. For example, stocks, bonds, your stamp collection, your house and car are all capital assets.

Section 1231 deals the sale of non-capital assets (business property). Consequently, Form 8949 does not apply to Section 1231 transactions.

  • Section 1231 property includes, depreciable real property (an office building), depreciable personal property (machinery, equipment, furniture and fixtures), and land used in a trade or business (a parking lot).

For 2011 Section 1231 transactions, continue to use the same IRS forms that were used in prior years.

If you sold any capital assets during 2011, read the 2011 Instructions for Schedule D and Form 8949

Form 6252

If you receive one or more payments from the sale of your business in the year following the year of sale, it is an installment sale and Form 6252 must be filed.

Keep in mind, recaptured depreciation, (including the first year expensing deduction, also called the Section 179 deduction) must be reported in the year of sale as ordinary income, even if you receive no payment until the following year.

Form 4797 is used to figure depreciation recapture. Any gain in excess of recapture income on Form 6252 is reported under the installment method.