Did goodwill take a hit under tax reform?

The Tax Reform and Jobs Act changed the tax treatment of certain self-created intangible property.

This leads to an important question. Does tax reform affect goodwill created or acquired in a business?

Some say that the value of goodwill, when a business is sold, could now be considered ordinary income. If so, this could create a huge tax-hit for S and C corporation owners selling the assets of their corporations.

Is this in fact the case? Is goodwill really facing a dismal future?

Our advice? Don’t sweat it. Things are not as bad as some say as you’ll discover when you read my new article titled Tax Tips: Q&A: Did Goodwill Take a Hit under Tax Reform?

Three ways our fact-filled article can help you:

1. We’ll explain important goodwill basics. Goodwill is an intangible asset created when one company purchases another company for a premium value. You can’t see, feel, or touch goodwill, but it is very real and can have substantial value. Buyers and sellers of businesses should both understand the tax implications of goodwill in any business sale or acquisition. We’ll give you all the details when you read the full after-tax-reform article.
2. We’ll tell you the difference between “self-created” goodwill and “acquired” goodwill. Self-created goodwill is a capital asset so your sale of self-created goodwill is a capital gain. Acquired goodwill is an amortizable Section 197 intangible. You recover its cost in equal monthly amounts over fifteen years. All will be explained when you read the full after-tax-reform article.
3. We’ll tell you about tax reform’s impact (or lack of it) on goodwill. Nothing in the Tax Cuts and Jobs Act conference report supports the contention that self-created goodwill is now excluded as a capital asset. The punch line? We believe that tax reform did not change the overall tax treatment of goodwill. To find out more, read the full article.