Everything Together and Closing the Transaction
Furniture, Fixtures & Equipment - Usually, this item will have
the most allocated to it. As of this writing, these assets can be depreciated
over a 5 year period.
Supplies - This item can usually be written off in the first year
therefore should be given the most consideration.
- Courts in recent years have allowed some buyers to deduct the value of
customer lists, where an allocation was made in the purchase agreement as
to the agreed value of each customer being acquired, and any such customers
are subsequently lost. That aside, customer lists are written off over a
15 year period.
To Compete - Obtaining such a covenant from the seller can be an
important negotiating point for non-tax reasons, as well. For tax purposes,
the courts will usually uphold a reasonable value for such a covenant agreed
to by the parties. Note that you can deduct or amortize the cost of the
covenant over 15 years, regardless of the period of the covenant. Also,
the courts have held that if the parties don't agree in the contract of
sale that such a covenant has a particular value, then it is considered
to have NO value for tax purposes, In other words, YOU LOSE, tax-wise, if
you fail to include a purchase price allocation in the agreement of sale.
Assets - The courts have upheld similar tax treatment for buyers
(and possibly with potentially beneficial capital gains treatment to the
seller as well) for purchase price allocations to various other types of
intangible assets. The tax life is 15 years as well.
or Consulting Agreements - Often, the seller may agree to stay
on, either as an employee or consultant to the buyer. The purchase price
may include some type of remuneration.