Can Form 4797 Gains 2024-2025

Today, we're talking about the difference between capital gains and ordinary income tax. It's such a hot topic. It was actually the first question I got right out of school over ten years ago. Then, this weekend, I attended a wedding where it was also discussed. Someone at the wedding knew I was a CPA, so they cornered me and wanted to ask about an upcoming sale and the tax rate they would have to pay. Capital gains taxes are generally lower than ordinary income tax rates. So, typically, in an income situation, you would want to know the capital gain tax rate rather than the ordinary income tax rate. When more than half of your sales price could go to taxes, it's advisable to allocate a part of your purchase price to capital gains taxes instead of ordinary income to keep more of your money from the sale. With businesses, sometimes there is a sale where the buyer and seller must agree on the sales price. Once they agree on the price, they can allocate that amount to various items such as goodwill, land, or fixed assets. Many times, we can help save taxes by allocating different parts of the purchase price to different items that generate a capital gain tax rate instead of ordinary income tax. A good example would be a business selling for a million dollars. In the letter of intent, they could allocate some of that money to a non-compete agreement. While a non-compete is important, allocating more of the sales price to it could result in ordinary income tax rates. When more than half of the sales price could go to taxes, it's crucial to work with the buyer to shift that allocation to something that would generate more of a capital gain tax rate. By...