What happens at the end of an indie business?

Hi June,

This website has been a great resource for me - thanks for all you do!

I haven't seen my question addressed on your blog. What is the tax liability for closing a business? I'm a photographer, and might want to keep some of the items I purchased while my business was operational. If I keep a camera/lens for personal use, for example, what is the tax implication of that? And how would I report the dollars generated by the items I sell?

Thanks so much,
Cheryl D
Franklin, TN


Hi Cheryl,

I assume you are a sole proprietorship. If so when you close up shop there are no tax consequences other than the treatment of equipment. And, since I don't give specific tax return instruction in my posts I'll give you an overview of what happens.

If you sell a piece of equipment for more than its cost basis then you have a taxable capital gain; for less than its basis, you have a capital loss. In this instance cost basis means what you paid minus depreciation taken.

For equipment that you "expensed" in its year of purchase, even if you do not sell it when you close the business you must "recapture" some of the cost if the depreciation period has not expired. For instance, if you bought and expensed a $10,000 Hasselblad less than 5 years ago, you'll have to claim some income.