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How do I report my selling of business to IRS and NY

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Ken Jr

Junior Member
What is the name of your state (only U.S. law)? NY

Last year, in January, I sold my business to my parents (who told me they posted a question here too about their taxes). The only "assets" the business had was the actual physical inventory, no plant, fixtures or equipment were ever owned by the business. I sold the inventory (below the value of what was paid for it) to my parents as I can no longer run the business with my health. How do I report I sold the business to the IRS and NY? Do i fill out the Profit and Loss section and just list the amount I was paid as "sales receipts" and cost of goods sold as the actual value of the inventory (though that would result in a Negative amount for the sales) and the IRS and NY will have to presume I closed the business as I can't find anywhere to check a box to say, "hey tax person, I sold the business". Please Help! Thanks!
 
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Taxing Matters

Overtaxed Member
What is the name of your state (only U.S. law)? NY

Last year, in January, I sold my business to my parents (who told me they posted a question here too about their taxes). The only "assets" the business had was the actual physical inventory, no plant, fixtures or equipment were ever owned by the business. I sold the inventory (below the value of what was paid for it) to my parents as I can no longer run the business with my health. How do I report I sold the business to the IRS and NY? Do i fill out the Profit and Loss section and just list the amount I was paid as "sales receipts" and cost of goods sold as the actual value of the inventory (though that would result in a Negative amount for the sales) and the IRS and NY will have to presume I closed the business as I can't find anywhere to check a box to say, "hey tax person, I sold the business". Please Help! Thanks!

Ken Jr.
Was the business a sole proprietorship, LLC, corporation, or what? How did you arrive at the value your parents paid for the business? Did they get anything other than inventory; e.g. are they using the business name, logo, customer lists, or other intellectual property? And what kind of business is this?
 

not2cleverRed

Obvious Observer
Dad's post might help you, TM: https://forum.freeadvice.com/tax-law-12/do-i-need-file-tax-return-irs-nys-646327.html
 

Ken Jr

Junior Member
Answers

It was a sole proprietorship. They are still using the name of the business. There was no logo, or any other intellectual property involved. The sale of inventory value was what they were willing to pay for it. There was only the inventory and the actual value was based on the amount it cost to purchase the inventory. The business is selling Model Train items at Train Shows.

Thanks.
 
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LdiJ

Senior Member
It was a sole proprietorship. They are still using the name of the business. There was no logo, or any other intellectual property involved. The sale of inventory value was what they were willing to pay for it. There was only the inventory and the actual value was based on the amount it cost to purchase the inventory. The business is selling Model Train items at Train Shows.

Thanks.
Ok, then you are going to file a final schedule C with your tax return. If you were properly doing your inventory (not expensing it until you sold it) then you will have a loss because you sold the inventory at less than you paid for it. You will show the income, and then the cost of goods sold, whatever other expenses you had in the year in question, and your net loss.

If you were not doing the inventory properly, if you were expensing when you purchased it, then you will show the income, deduct any other expenses you had during the year in question, and probably show a modest profit.
 
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Ken Jr

Junior Member
Thanks...one last question.

Ok, then you are going to file a final schedule C with your tax return. If you were properly doing your inventory (not expensing it until you sold it) then you will have a loss because you sold the inventory at less than you paid for it. You will show the income, and then the cost of goods sold, whatever other expenses you had in the year in question, and your net loss.

If you were not doing the inventory properly, if you were expensing when you purchased it, then you will show the income, deduct any other expenses you had during the year in question, and probably show a modest profit.

Thank you for the answers. I don't see a checkbox that says this is my FINAL Schedule C. Or will IRS presume that I sold the business since the inventory at the end of the year is ZERO?

Thanks again!

Ken Jr.
 

LdiJ

Senior Member
Thank you for the answers. I don't see a checkbox that says this is my FINAL Schedule C. Or will IRS presume that I sold the business since the inventory at the end of the year is ZERO?

Thanks again!

Ken Jr.
The IRS has no expectation that someone will continue to have a Schedule C from year to year. However, should some rare thing happen that causes an agent to look that hard at your Schedule C, yes the fact that your inventory ended with zero at the end of the year would be an indication that your business ended.
 

Taxing Matters

Overtaxed Member
Thank you for the answers. I don't see a checkbox that says this is my FINAL Schedule C. Or will IRS presume that I sold the business since the inventory at the end of the year is ZERO?

Thanks again!

Ken Jr.
One other thing to add to the response that LdiJ gave you on this. The IRS typically does not include a box or line to indicate that a particular form or schedule that is just one part of a larger return will not be filed in the future. Rather, it asks whether the return itself is a final return, primarily for those returns that are required to be filed by the taxpayer every year regardless of how much activity it had, like the corporate income tax return (Form 1120 series returns) and partnership returns (Form 1065). The reason for that is so the IRS knows to turn off the filing requirement for that return and to suppress sending out notices for failure to file those returns. When you file the Form 1040 next year without a Schedule C that will tell the IRS you are are asserting you had no self-employment income. You filed the return you were required to file and told the IRS what you say was your income for the year. That gives the IRS the information it needs to know, so a box on the Schedule C to indicate a final one would not be useful to the IRS.

In the case of the 1040, the IRS does not include a final return check box because the only thing that truly forever ends a requirement to file a Form 1040 is death. I’ve advocated for sometime that the IRS should include a box up in the area of the name and SSN blocks to indicate a taxpayer has died, but for whatever reason it chooses not to do that. My best guess is that the Service believes that wouldn’t provide it a significant benefit.
 

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