HN Explorer

Ask HN: Appropriate (US) tax form for a software acquisition?

3 points by coralreef ↗ HN
My friend and I are selling a piece of software we've developed, and he will go on to work for that company. For the sake of simplicity lets just assume its just one person in this transaction instead of both of us.

The software acquisition will be done in a transaction, and the hiring separately.

Does anyone have advice regarding how to handle this transaction? The company wants him to fill a w9, but won't that imply that the software acquisition was work done for income, rather than an asset transfer / capital gain (or something)?

Any help appreciated, thanks

5 comments

[ 0.24 ms ] story [ 21.1 ms ] thread
greenyoda
If they want to hire your friend as an employee, a W-9 form seems pretty standard - it's just a "Request for Taxpayer Identification Number and Certification". All your friend is saying with this form is "this is my SSN, and I'm a U.S. Citizen/Person". You can see a W-9 form here: http://www.irs.gov/pub/irs-pdf/fw9.pdf

But you probably want to have a lawyer look over the software acquisition contract to make sure that you don't get taken advantage of.

patio11
The W-9 just gets them your info. How they report the transfer of money (e.g. on a 1099) is not maximally relevant to how you categorize it on your tax return.

Talk to an accountant regarding how to characterize the transaction. Certain parts of this characterization must match between the company and you, and they're negotiable. You and the company have competing incentives here!

Example: All else being equal the company will want to push more of the pie into "income received for services rendered", which let's them avoid capitalizing the expense. That allocation is maximally tax inefficient for you: in an ideal world for you, the deal is structured such that the economic transaction is wholly money-for-property (triggering the US's favorable treatment of capital gains) and that any services required are incindental to the transaction and not billed seperately.

coralreef
Wow, a reply from patio11! Thanks for chiming in.

Regarding this negotiation on tax implication, is this to be explicitly negotiated in the contract, or something to be done afterward? Or is it naturally implied in the contract, by declaring the assets being transferred?

Thanks

patio11
This will be hammered out in the negotiations over the asset purchase agreement (contract). Get. Professional. Advice.
dangrossman
I sold some software rights and related assets to another company a few years back. My accountant did end up reporting the income as a long-term capital gain (all of the assets having been created at least a year prior) at the lower tax rate that comes with.