Non-Compete Agreements When Buying a Business

These agreements come with tax implications that you need to be aware of.

When you buy a business, you probably don’t want the former owners competing with you—at least not for a while. To prevent the competition, you will likely enter into a non-compete agreement with the former owners. The agreement has tax implications that you need to consider.

As the buyer, you or your business entity must amortize amounts allocated to non-compete agreements over 15 years, even though the term of the agreement may be much shorter (often three to five years or even less).

In the documents for your purchase/sale transaction, be sure to specify the amounts that you allocated to non-compete payments. Otherwise, the IRS can always call into question your 15-year amortization deductions.

Note that both you and the seller must report the business purchase/sale transaction and its allocations to the IRS on Form 8594 (Asset Acquisition Statement Under Section 1060). To help avoid IRS scrutiny, you want both the buyer and the seller reporting the same dollar amounts to the IRS.

About Steve Shapiro, EA Steve Shapiro grew up in a family owned business and understands the trials and tribulations of the small business owner.  He has extensive experience in credit, planning and helping people manage debt which led him to the tax industry.

Steve’s team of EA’s have helped hundreds of delinquent taxpayers settle their problems with the IRS. Find solutions to your business and personal IRS problems. Call today for a FREE Consultation. 888.490.9744 or visit www.steveshapiroea.com.