[sherick]

I am helping a friend with her taxes. She purchased a small service business in 2011. She purchased no assets - basically just the name and phone number. She is paying $100K for the business, and is paying the former owner by giving 10% of her fees collected. There is just principal - no interest is being charged. I have all of her expenses recorded on Schedule C (she is an LLC) but I don't know how to account for the amounts paid for the purchase of the business. Thanks for your help!

[AtlantaTaxExpert]

The payment of the $100K IS a valid, deductible expense. The payment can be listed as "fees" on the Schedule C.

You can also list it as "Payment for Business" on page two of the Schedule C under "other expenses".

[sherick]

Thanks so much for your response. However, I found what I believe to be the answer in the sales agreement after posting this question. It provided a breakdown of the $100K as $90K to Goodwill & Non-compete, and $10K for computers & other assets. So, the Goodwill was amortized over 15 years and the assets over 5 years (straight line for all). Do you agree?

The payment of the $100K IS a valid, deductible expense. The payment can be listed as "fees" on the Schedule C.

You can also list it as "Payment for Business" on page two of the Schedule C under "other expenses".

[AtlantaTaxExpert]

No, because you are making payments over time (based on 10% of receipts). Y

You also stated that NOTHING physical was purchased, so the $10K for computer and other assets would NOT be accurate.