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Subject Author Date
Selling software asset - CGT or Income Tax? Lee 06-20-2006
Posted by Lee on June 20, 2006, 2:12 am
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 I have written a software program that I have licensed to
customers to use for the last 6 years or so. Recently, I
have been made another offer to purchase this product
outright with source, etc and this time the offer is
attractive for me.

I am worried about whether I would be taxed as capital gains
vs. ordinary income. I spoke with someone at the IRS
("complex tax issues dept") who said that it should be
claimed on Sched. D.

Up until the first of the year, I was a sole proprietor, but
incorporated sub chapter s. I personally still own the
software and rights to it. I have not sold it to the new
corporation.

Whether I get taxed as personal income or as capital gains
for this plays a major part in my decision.

Any help would be appreciated.

Thanks,

Lee

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
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Posted by San Diego CPA on June 21, 2006, 1:31 am
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> I have written a software program that I have licensed to
> customers to use for the last 6 years or so. Recently, I
> have been made another offer to purchase this product
> outright with source, etc and this time the offer is
> attractive for me.
>
> I am worried about whether I would be taxed as capital gains
> vs. ordinary income. I spoke with someone at the IRS
> ("complex tax issues dept") who said that it should be
> claimed on Sched. D.
>
> Up until the first of the year, I was a sole proprietor, but
> incorporated sub chapter s. I personally still own the
> software and rights to it. I have not sold it to the new
> corporation.
>
> Whether I get taxed as personal income or as capital gains
> for this plays a major part in my decision.
>
> Any help would be appreciated.

I hadn't read this message before posting a reply to your
other message. Nothing in my other response changes based on
this message, just one additional comment to note re your
message above. You do not need to sell the software or
rights to it to the corp, assuming you're the sole
shareholder, you can simply contribute it to the corp. If
you sell the corp (i.e., sell the stock, not the assets),
you'll have capital gain treatment on the sale of the stock
of the company. Again, this is a very simplistic response
based on the facts above. It certainly is not a
recommendation of a specific strategy.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Lee on June 21, 2006, 10:55 pm
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San Diego CPA enlightened me by writing:

> I hadn't read this message before posting a reply to your
> other message. Nothing in my other response changes based on
> this message, just one additional comment to note re your
> message above. You do not need to sell the software or
> rights to it to the corp, assuming you're the sole
> shareholder, you can simply contribute it to the corp. If
> you sell the corp (i.e., sell the stock, not the assets),
> you'll have capital gain treatment on the sale of the stock
> of the company. Again, this is a very simplistic response
> based on the facts above. It certainly is not a
> recommendation of a specific strategy.


The corporation is wholey owned by my wife and myself 50/50.
Would that make any difference?

Thanks again,

--
Lee

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by San Diego CPA on June 22, 2006, 8:58 pm
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> San Diego CPA enlightened me by writing:

>> I hadn't read this message before posting a reply to your
>> other message. Nothing in my other response changes based on
>> this message, just one additional comment to note re your
>> message above. You do not need to sell the software or
>> rights to it to the corp, assuming you're the sole
>> shareholder, you can simply contribute it to the corp. If
>> you sell the corp (i.e., sell the stock, not the assets),
>> you'll have capital gain treatment on the sale of the stock
>> of the company. Again, this is a very simplistic response
>> based on the facts above. It certainly is not a
>> recommendation of a specific strategy.

> The corporation is wholey owned by my wife and myself 50/50.
> Would that make any difference?

No. What I was getting at is that you can make a
contribution to the corp, if there are unrelatd 3rd party
shareholders, you could still do it but it's gets more
complicated for a variety of reasons that generally aren't
necessary to consider if you and your spouse own 100%.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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