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Thread: Deduction

  1. #1
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    Deduction

    Hi

    I would like to know, If an accountant working as sole proprietor bought a "business" from another accountant.
    Business def:
    - right to use part of their name (but also requested to please do use that name so almost forced to use it, not really an advantage).
    - Plus clients (therefore right to takeover clients)

    The "value" was calculated on a % of annual income from each client - the only certainty for the new accountant is that if the client stay at least 3 months, you pay in full for the client,

    The previous accountant is not allowed to start a business again in the area for 2 years.

    Will this be capital in nature? or an expense?
    Can the accountant amortize the asset if capital,and get a tax deduction?

    Maybe he can say that the amount paid was also partly as a restraint of trade to the previous accountant...

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    Business1,

    This sounds like goodwill: the difference between what you paid and the assets that you acquired. And yes, you can amortise goodwill, but no tax deduction will be allowed.

    I am not sure if this transaction has already been closed, but I at some stage considered buying an accounting practice, and after a lot of negotiations came to the conclusion that the new accountant cannot guarantee the fact that the clients will stay, so it's is a very difficult thing to determine a fair price on a practice. Just my thoughts on the matter.
    Last edited by dellatjie; 11-Jan-17 at 10:18 AM. Reason: Additional comment re questions

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Business1 View Post
    Maybe he can say that the amount paid was also partly as a restraint of trade to the previous accountant...
    One should bear in mind there are tax consequences for the previous accountant too. The two parties had better be paddling in sync.

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