Sale of Business


W

wallace_cpa

I'm looking a purchasing an insurance business for $200K.
This is from an agent with a nationally known insurance
carrier. There are no assets however. My question is how
the $200K sales price will be allocated. Is it all
goodwill? Is going concern also an intangible asset? Since
convenant not to compete must be amortized over 15 years
just like goodwill, should I allocate anything to that? I'm
also considering allocating something to a consulting
agreement as I can fully deduct this in the year of payment
however it looks like the sellers would want to call all of
it goodwill as this is a sale of a capital asset and given
preferential tax treatment at 15%. Is this correct?
 
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S

Stuart Bronstein

I'm looking a purchasing an insurance business for $200K.
This is from an agent with a nationally known insurance
carrier. There are no assets however. My question is how
the $200K sales price will be allocated. Is it all
goodwill? Is going concern also an intangible asset?
The customer list is an asset apart from the goodwill. I
don't know how long the amortization period is, though.

If you are buying the trade name, that's also a separate
asset. I'm not aware of whether it has a depreciable useful
life.
Since convenant not to compete must be amortized over 15 years
just like goodwill, should I allocate anything to that?
Do covenants not to compete always have a 15 year
amortization? The ones I've seen generally last for five
years or less.
I'm also considering allocating something to a consulting
agreement as I can fully deduct this in the year of payment
however it looks like the sellers would want to call all of
it goodwill as this is a sale of a capital asset and given
preferential tax treatment at 15%. Is this correct?
Good will is a capital asset, so should be the customer list
and trade name. The consulting contract would be taxable
income, not capital gain. To be fair they should give you
something you can write off. But it's all a matter of what
you can agree to.

Stu
 
H

Harlan Lunsford

I'm looking a purchasing an insurance business for $200K.
This is from an agent with a nationally known insurance
carrier. There are no assets however. My question is how
the $200K sales price will be allocated. Is it all
goodwill? Is going concern also an intangible asset? Since
convenant not to compete must be amortized over 15 years
just like goodwill, should I allocate anything to that? I'm
also considering allocating something to a consulting
agreement as I can fully deduct this in the year of payment
however it looks like the sellers would want to call all of
it goodwill as this is a sale of a capital asset and given
preferential tax treatment at 15%. Is this correct?
I'm willing to be that almost all of it will end up as a
sale of intangible. If you can get part of it allocated to
consulting, fine and dandy.

the client list----- nothing about it in your post. Since
it's a national company, I just bet they follow industry
standard and retain ownership of client list. So don't
expect any allocation thereto.

ChEAr$,
Harlan Lunsford, EA n LA
Mon, 10 Jan 2005
 
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D

David Woods, EA, ChFC, CLU

I'm looking a purchasing an insurance business for $200K.
The customer list is an asset apart from the goodwill. I
don't know how long the amortization period is, though.

If you are buying the trade name, that's also a separate
asset. I'm not aware of whether it has a depreciable useful
life.
Do covenants not to compete always have a 15 year
amortization? The ones I've seen generally last for five
years or less.
Doesn't matter how long the covenant lasts. You amortize it
over 15 years whether it is a 1 year or 20 year covenant.
 

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