Oct 3 - What does allocation of the sale price mean when selling a business?

The Internal Revenue Service requires that the various assets (both intangible & intangible) be given a value when a business is sold for purposes of determining tax owed by the seller and establishing a cost basis for the new owner's future tax calculations. Assets typically allocated are fixtures, equipment, inventory, goodwill, non-compete, and real estate. Be careful when allocating equipment that has been substantially depreciated. The allocation should be at fair market value because the IRS requires the seller to pay on the gain over the depreciated basis at ordinary income rates.