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Old 01-30-2014, 12:17 PM
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Schedule C deduction with no Schedule C Income

I posted this in another forum as well since it relates to several topics.

All,

I have a strange situation for 2013 that I will try to lay out for you experts.

I am a financial advisor and a W-2 employee. I am 100% commission, but they make us employees for benefit purposes.

I recently moved firms and my two partners came with me. We received a transition bonus for the move. My senior partner who is 70 retired shortly after we moved. The new firm would not pay him a transition bonus directly becuase he needed to sign a 9 year employment agreement. He was not interested in a transition bonus, just a buyout of his portion of the book of business because he was retiring. My partner and I used our transition bonuses to buy him out. My portion of this was right above $60,000.

We talked to a CPA, who issued him a 1099-B on our behalf for the purchase of a "Client List" so he could write off the check as a LTCG.

On my taxes, I am unsure how to treat this payment to him. Right now, I have it in on a schedule C as a section 197 depreciable intangible asset because everything I read said that is what a Client List is. I have no schedule C income since I am an employee. I was told I could make the argument that I should be able to deduct it there over 15 years because I am 100% commissioned, and that is the only place to deduct a intangible asset like that, as I understand it.

I then looked at the IRS website about employee business expenses. Could this be considered an employee business expense where I could deduct the whole thing this year on schedule A subject to above 2% of my AGI?

Does the issuing of the 1099-B affect me in any way?

Any help is greatly appreciated!



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Old 01-30-2014, 03:16 PM
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Originally Posted by mlwoo View Post


#1;I am a financial advisor and a W-2 employee. I am 100% commission, but they make us employees for benefit purposes. I recently moved firms and my two partners came with me. We received a transition bonus for the move. My senior partner who is 70 retired shortly after we moved. The new firm would not pay him a transition bonus directly becuase he needed to sign a 9 year employment agreement. He was not interested in a transition bonus, just a buyout of his portion of the book of business because he was retiring. My partner and I used our transition bonuses to buy him out. My portion of this was right above $60,000.We talked to a CPA, who issued him a 1099-B on our behalf for the purchase of a "Client List" so he could write off the check as a LTCG.

On my taxes, I am unsure how to treat this payment to him. Right now, I have it in on a schedule C as a section 197 depreciable intangible asset because everything I read said that is what a Client List is.


#2;I have no schedule C income since I am an employee. I was told I could make the argument that I should be able to deduct it there over 15 years because I am 100% commissioned, and that is the only place to deduct a intangible asset like that, as I understand it.I then looked at the IRS website about employee business expenses. Could this be considered an employee business expense where I could deduct the whole thing this year on schedule A subject to above 2% of my AGI?



#3;Does the issuing of the 1099-B affect me in any way?
#1;Your intangible asset (i.e. client list) is goodwill and and its value is caculated at FMV at the time of sale/purchase It has a zero basis and sold at FMV taxed as capital gain for the seller. He needs to use a sch "D"/ form 8949 for the sale of his goodwill . new Sec 197 requires 100% of price be amortized over 15 years.Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser's basis in the assets is determined only by the amount paid for the assets. Be careful to use Goodwill/Noncompete/Client List as one item because if Noncompete is used separately it opens the door to it being treated as ordinary income. However, there are many exceptions to Section 197 deduction rules. For example, so-called "anti-churning" rules prohibit Section 197 deductions when there is not a substantial change in the use or ownership of the intangibles. In addition, interests in corporations, trusts, estates and partnerships are not deductible.

#2; I guess so. Most EE business expenses are considered miscellaneous expenses and are deductible only to the extent that all your miscellaneous expenses exceed 2% of AGI. If your AGI is $75,K , for example, the first $1.5K of miscellaneous expenses are not deductible. Use that as a challenge to round up all possible write-offs, so you can pass the 2% test. (Unless otherwise noted, the expenses in this list are all subject to the 2% test, but there’s only 2% threshold. Add up qualifying expenses in all these categories to see if you pass the 2% test.)

#3;no;it is not for you;you do not pay any tax ,i.e. LTCG on the purchase of the asset; the Form 1099-B provides profit and loss information on specific types of investments for investors/the seller to report on their/his annual tax returns. a broker must file Form 1099-B for him for whom they have sold stocks, bonds and other financial instruments during the prior tax year. In addition, the broker must alsofile Form 1099-B with the IRS. Information contained on Form 1099-B that should be reported to the IRS varies somewhat by individual circumstances. However, any information contained in Box 2 of the form, reporting cash totals from transactions involving financial instruments, generally should be reported on Form 1040, Sch D, /form8949 .



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Old 01-30-2014, 03:52 PM
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Thanks for the quick response.

Which way would you do it? Just to clarify, if I did it 197 without income on schedule c, would it throw up red flags?



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Old 01-30-2014, 04:06 PM
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Which way would you do it? Just to clarify, if I did it 197 without income on schedule c, would it throw up red flags? ===>>As you can see, you are an reg EE, NOT 1099 guy so you actually do not need/can't use Sch C--Sch C-EZ as you have no selfemploymemnt income but you have only W2 salary/wage income.Reporting the costs on Sch A as miscellaneous expenses exceed 2% of AGI is OK.however, as you know, you must itemize deductions on your return to claim the EE biz exp.



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