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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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    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.
    The trouble with opportunity is it normally comes dressed up as work.

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