@nancy0105
This is far too complex for this forum. You will need the assistance of your client's CPA. They will need to know:
1) Did your client sell 100% of the business?
2) Was this an asset sale or a stock sale?
3) If an asset sale, what is the sale price allocation between goodwill, fixed assets, non-compete, inventory, etc. Also, what was your client's basis in those assets as of the closing date?
You mentioned the sale of the business was $312K, but that equals $3K X 52 weeks X 2 years. Where is the interest on the seller's note? If this was a no-interest loan, the IRS requires that your seller book imputed interest. It is an amount that the IRS requires the seller to report as interest income even though they did not actually receive it. The IRS publishes those rates each month, referred to as Applicable Federal Rates, or AFRs.
