Hello Everyone.

I would like to know how to report selling off a part of your business? If I have an S Corporation that handles business insurance and personal insurance, and I realize that the personal insurance is really not bringing me income, how do I handle selling that part off? Is it considered setting an asset? or a part ownership? How do i report this and how does this affect my taxes? Please advise. Thanks and have a great day.

Rosa

I would like to know how to report selling off a part of your business? If I have an S Corporation that handles business insurance and personal insurance, and I realize that the personal insurance is really not bringing me income, how do I handle selling that part off? Is it considered setting an asset? or a part ownership?==============>>>>>>>>>>>>>>I guess it depends on the documents creating the corporation (the articles of incorporation of S corp; you need to check the shareholder agreement of the S corp, the wording of your stock certificate ,the bylaws, your state Statutes, concult with your biz lawyer; one way for an individual shareholder to change her ownership percentage in an S-corp is to sell shares to, other shareholders. the securities laws need to be considered/complied with in the sale(s) as well.

How do i report this and how does this affect my taxes? Please advise. Thanks and have a great day=========>>>>>>>>>>>>asmentioned above; for tax purposes, the S corp needs to close the books and issue sch K-1s to the old shareholders based on the business’ financial activity up until the sale, and then issue sch K-1s again at the close of the year to the new shareholders. if the change of ownership takes place in the middle of the tax year, taxing an S corp becomes much more difficult. If a stockholder disposes the entirety or part of his interest, the S corp can close its books for the year and issue Sch K-1s detailing the S corp’s financial activity for the partial tax year to the old owner’s based on the old ownership percentages. At the end of the S corp’s conventional tax year, the S corp can then issue Sch K-1s detailing the financial activity for the rest of the year divided based on the new ownership percentages. It is important to note that this can only occur if all stockholders agree to it, so often the retiring stockholders will insist upon this as a condition of the sale.

Thank you Wnhough for your reply.
Does it have to be a sale of part of my S Corp or can it just be considered an asset (the client list and department of my personal insurance clients). I don't want to add shareholders to my business. What are the other options I may be able to use? If it is considered an asset, how do I report this on my taxes? Please advise. Thanks and have a great day.

Rosa

I should say it depends; the buyer and seller must decide whether to structure the deal as an asset sale or a stock sale. Generally, buyers prefer asset sales, whereas sellers prefer stock salesAn asset sale is the purchase of individual assets and liabilities, whereas a stock sale is the purchase of the owner's shares of a corporation.If it is an asset sale, yu retain possession of the legal entity and the buyer purchases individual assets of the Sc orp, i.e., licenses, goodwill, trade secrets, trade names, telephone numbers or etc. However, asset sales may also present problems for buyers. Certain assets are more difficult to transfer due to issues of assignability, legal ownership, and third-party consents. Examples of more difficult to transfer assets include certain intellectual property, contracts, leases, and permits. Obtaining consents and refiling permit applications can slow down the transaction process. aslongas what you are selling is an intangible asset you yourself created through your pure personal efforts, you'll have a problem with the long-term gain treatment as qualifying for the 15% maximum rate(aslongas your tax bracket is higher than 15%) or 0% (tax rate is 15% or lower). aslongas you previously purchased the client list and department of your personal insurance clients from anyone and thus have not been amortizing it as a Sec 197 intangible, then it’d be the sale of the book of business and be eligible for Capital Gains treatment by you. Asset sales can trigger ordinary income tax liabilities at higher rates in addition to capital gains tax liabilities. Consequently, estimating your ordinary income and capital gains tax liabilities on the sale of an S corp becomes more complicated

Dear Wnhough

Thank you so much for your reply. I believe this will be an asset sale. No stock will be transferred and it is a personal insurance department that was built by this company. It is just not a department that is not receiving sufficient time and energy from everyone involved so we feel it will be better handled by someone else and I would like to know what the options are. Does this mean that capital gains will be paid? If the income for the year is 82,000 is it at a 15% capital gains rate. This is an S Corp. Please advise. Thanks again for all your help.

Rosa

.in general, the proceeds from an S Corp sale are passed through and reported as a capital gain instead of ordinary income on s corp shareholders/employees’individual tax returns; as mentioned previously stock sales eliminate the potential for ordinary income tax liabilities and they simplify estimating capital gains tax liabilities.however, in the case of asset sales, those sales require assigning valuations to all of the assets of the S corp. For sellers, asset sales generate higher taxes because while intangible assets, such as goodwill, are taxed at capital gains rates, other hard assets can be subject to higher ordinary income tax rates. Federal capital gains rates are currently 20% and state rates vary from state to state.Ordinary income tax rates depend on the seller's tax bracketso, as said, asset sales can trigger ordinary income tax liabilities at higher rates in addition to capital gains tax liabilities. Consequently, estimating your ordinary income and capital gains tax liabilities on the sale of an S corp becomes more complicated when the sale is structured as an asset sale.