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Need help with tax return for selling a sole proprietor business in 2006. Either a website or someone I can?


email with questions. Thanks for saving my life if you can do this!

I can start you out.

When you sold your business, you sold a bundle of activity. That activity had assets, liabilities and a "book value" (the difference between the two).

When you sell a business, for tax purposes, you have to determine three different values:

1) The book value of the business
2) The fair market value of the business
3) The amount of money you actually received

The book value of the business is easy:

assets (book value) - liabilities (book value)

The fair market value is slightly more difficult:

assets (fair market value) - liabilities (book value)

The last one is easy if you received cash (or regular future cash payments), and it's a little trickier if you received cash and property. If you received property, you need to know it's book value and fair value, as well.

This is how all of this stuff works:

You are going to pay taxes on the gain from the sale of your business. The taxable amount is going to be what you received minus the book value, and the amount of your gain will be allocated reasonably among all of the assets you sold. All of the assets will then be lined up and evaluated for their class and character (whether 1231, 1245, 1250, 291, long-term investments, short term investments or passive income property, mostly).

(The fair market values are used for determining the cost basis of the person who bought your business and your cost basis of any property that you received other than cash.)
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