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  • 1.  Sale of Business impact on Personal Taxes

    Bronze Most Valuable Member
    Posted 09-06-2022 10:41 AM
    I have 2 clients I am working with - each doctors, now owning a portion of a S Corporation. 

    During 2021, doctor A (previously 100%) sold 25% of his practice to doctor B (previously 0%).  The doctors did an approximate valuation and decided that the 25% would be purchased for $187K. Doctor B is now paying the $187K to doctor A over a 5 year period. 

    My question is regarding each of their personal tax returns. 
    - For Doctor B, I believe only impact I should be showing to his personal return is the new K-1 from the business, with a starting basis of $187K, even though he still has 4.5 years left to the loan.  

    - For Doctor A, I have his K-1 entered.  I also know that the sale should also show up on his schedule D, however because the valuation was just an approximate, I don't know that I have an accurate cost basis to use (the sale would technically result in a loss based on an approximate valuation of $878K for the total company or $219K for 25% vs. the sale price of $187K).  I am also unsure of the impact to his basis in the company - if it should be reduced by 25% or if there is an additional impact based on the sale price, etc. 

    Any guidance would be greatly appreciated!  Thank you in advance!

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    Megan Muccio CPA
    Megan D. Muccio, CPA, PLLC
    Melville NY
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  • 2.  RE: Sale of Business impact on Personal Taxes

    Posted 09-07-2022 01:42 AM
    A sold 25% of his stock in his S-corp
    the question is  not what the valuation of the corp is, but what his individual  basis is in his stock,,then 25% of that is his basis against the sales price of that 25%  i believe that is all you would need to report the sale by that seller
    that purchase price would be B's basis....there is election that can be made to step-up the buyer portion of those assets going forward but that is another whole issue / question...  that would involve valuation in order to allocate assets

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    Howard Silverman

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  • 3.  RE: Sale of Business impact on Personal Taxes

    Posted 09-07-2022 01:45 AM
    I made the previous statement with the assumption that the practice started out as an S-Corp., before the sale. .If that is an incorrect assumption, the facts and answer would change. Please clarify

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    Howard Silverman
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  • 4.  RE: Sale of Business impact on Personal Taxes

    Bronze Most Valuable Member
    Posted 09-08-2022 01:56 PM
    Thank you Howard.  Yes, the practice was previously an S corp and remained one when the 25% stock was sold.

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    Megan Muccio CPA
    Megan D. Muccio, CPA, PLLC
    Melville NY
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The opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute an accounting opinion.