[Hidden-tech] Buying a Business to Avoid Profit Tax

[Andy Klapper]

Rob,

 

As another option - I delay paying taxes on income on my LLC by putting a ton of money into my 401(k) each year.  As a sole proprietor I can put up to 25% of my profit into my 401(k) in addition to the $18K ($24K if you are 50 or older) that I can put in normally.  This gets complicated if you have any employees because it’s profit sharing so, I believe, you’d have to give them the same amount you are giving yourself.  Maybe your business is doing much better than mine but I’ve found that it’s hard to even come up with the legally allowed amount each year.  One last note on this – Mass only lets you take $4K of your 401(k) contributions off of your personal income taxes so this is mostly a federal tax deferral method.  I say deferral because eventually, when you retire and take the money out of your 401(k) plan you will end up paying taxes on that money.  Presumably you’ll be making less income when you are retired so the amount of taxation will be less.  I’d recommend Vanguard to manage your 401(k) and low cost index funds for where you invest your money but that is a whole other thread.

 

As everybody has stated so far – check with an accountant to make sure that I’m not wrong or failed to mention something important.

 

 

 

From: hidden-discuss-bounces at lists.hidden-tech.net [mailto:hidden-discuss-bounces at lists.hidden-tech.net] On Behalf Of Rob Laporte
Sent: Friday, September 22, 2017 11:48 AM
To: Hidden tech list <Hidden-discuss at lists.hidden-tech.net>
Subject: [Hidden-tech] Buying a Business to Avoid Profit Tax

 

Hi HTers,

 

I hope many of you have faced the situation that a sole proprietorship or S-Corp (and LLC too?) means that annual profits are taxed at high personal income tax rates. Buying whatever one needs at the end of the year is often a way to reduce that tax hit, but often a business doesn’t really need to buy much. Buying a whole business, preferably related to one’s own business, would work too, as far as my low knowledge of tax law goes. 

 

For search marketing and conversion rate optimization (CRO) firms like mine, any online business that does not require a huge new skill set would be a candidate for acquisition. Most smaller businesses don’t do or can’t afford to do search marketing and CRO well, creating big opportunities for search marketing and CRO firms to realize that potential. Of course all kinds of businesses do such acquisitions, especially big businesses that get financing so cheap these days thanks ultimately to Fed money printing. 

 

So, this email has two threads. (1) anyone had experience with this issue they’d care to share? (2) do you know anyone who might want to sell for cash a small business that sells mostly online? 

 

Best Regards,

 

Rob Laporte

Founder & Managing Partner

DISC, Inc. - "Making Web Sites Make Money"

413-584-6500

Rob at 2disc.com <mailto:Rob at 2disc.com> 

www.linkedin.com/in/2disc <http://www.linkedin.com/in/2disc> 

www.2disc.com <http://www.2disc.com> 

 

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