Closing a business

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My client closed their business. How do I treat the remaining basis left in assets?

 

[kirby]

sending you a private message

 

[Samir]

I'm curious about the answer to this as well.

 

[J.J. Baggett]

I would like to know also. What if one of the assets was an account receivable from a property that was sold. Will it be taxed then or as the payments are made??

 

[Samir]

If the AR is still going to be collected, will the entity still exist to receive these payments? If so, then the business entity is still doing business and will have to file tax returns like normal.

 

[J.J. Baggett]

No, the entity will close, I am going to retire. I would like to collect the A/R myself as the SUB S would have, pay the tax yearly as I always do. By the way, the subs is on the accrual method of accounting. I was told when I close it, I will pay the tax on the full A/R.. I dont see how when the money is not collected. Am I wrong? I have two answers from two accountants, and the IRS will not answer me.

 

[Samir]

If you are on accrual, you will have to pay the tax when closing the business since the income is not counted when you actually get the cash.

 

[J.J. Baggett]

Thanks, thats what one accountant said, the other said pay it as yearly income. Funny the IRS ducked my question. Any way around this?

 

[Samir]

If you are filing the return for the business as final, then you can't take it as yearly income.

Who will they be paying to once the business is closed? You personally? If so, then the business isn't actually getting that income and you could write the whole ar off to bad debts as an expense, so your business income would be zero.

 

[J.J. Baggett]

Interesting thought.. As is now the AR is only 47% gain. If I did that I think the whole amount would be taxable.. The issue is the ACCURAL.. I had no idea I would face this 20 yrs ago when it was first established.
What I dont want to do is pay taxes on money I have not been paid yet.

 

[Samir]

Yeah, I don't accrual unless there are some real gains to it. 'The books are easier' is never a valid excuse for me.

I think you have to first think about who the remaining payments go to. If it is the business, then the business records will have to remain open to receive the payments and be taxed accordingly. If it is you personally, it's a different story.

 

[J.J. Baggett]

The payments would be going to me after I close the company..And the whole amount of the AR would be taxed the end of this year..
Murky at best...

 

[Samir]

If the payments are going to you, then the business is not receiving the payment for the AR. When you close the business, you should be able to write off the amount that the business will not be getting paid. That should reduce the amount of tax you will have to pay if not eliminate it entirely.

However, you will have to make sure you report the payments as income on your personal and will be taxed there.

 

[J.J. Baggett]

I am going to run this idea by my accountant. As is now the A/R is taxed at a 47% gain. As long as when I take the payment it is taxed at the same %, that would be a win.