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

[Rich Roth]

Terran's point is good, I was thinking business and forgot about general 
tax options.

I've had a mix of business IRA's for TNRglobal -- since I've mostly had 
employees when operating full force, I had to deal with the logistics of 
company IRA (sep and SIMPLE) -- I've always had high paid techie's so 
IRA's were expected, it worked out for me as a reasonable perk for 
employees.  Although those always took a fair amount of accounting and 
book keeping time.
Clearly a place for getting good tax accounting help -- I used Steve 
Chamberlain in Greenfield.

In any case, now I'm glad of the effort since it allowed both tax 
savings and a reasonable retirement nest egg.

Rich

On 9/22/2017 3:01 PM, Terran Birrell wrote:
> Interesting thought Rob.
>
> I'm no tax expert, so you may want to consult one or try running 
> through some tax forms with your proposed scenario, and I think this 
> is what Rich is saying, but I suspect that you'll find that purchasing 
> a business is deductible only to the extent that you are purchasing 
> assets just as they would be deductible if you purchased them for your 
> business, or your purchase inventory. The investment in the business 
> itself will not be deductible.
>
> Just as with asset purchases for your own business, I would say don't 
> let the tail wag the dog. If the purchase makes good business sense, 
> buy it, if not, buying in the name of "saving" taxes is not a good 
> idea. Rather than considering it is saving taxes, I think it would be 
> more accurate to say you're making an investment with the government 
> as a silent partner. If you buy something and it makes you more money 
> than it cost then you win and so does the government because you have 
> more money than before and you owe more tax on that money than the tax 
> you avoided by writing it off. If you buy something and it makes you 
> less money than you paid then you lose and so does the government 
> because you'll end up having less money and therefore owing less in 
> taxes. You still lost though.
>
> I think there are only a couple of ways in which you truly save taxes 
> by buying an asset:
> 1) The asset was something you were going to buy anyway (because it 
> will make you more money than not buying it would save) and you buy it 
> during a particularly high income year despite continuing to get value 
> out of it in future years such that the write off comes in a high tax 
> bracket year and the resulting income comes in a low tax bracket year. 
> Essentially this is a form of deferred income like a retirement plan.
> 2) You get some personal value out of the asset. The nefarious version 
> of this could be a car that you use for personal use, but fully claim 
> as a business expense (illegal). The less nefarious version might be 
> that same vehicle, but you really do use it only for the business, but 
> you choose to buy a more expensive vehicle than you need because it 
> gives you personal enjoyment. Still not a good business decision 
> because the additional cost does not add any value to the business, 
> but then the government is sharing in the cost of that "poor" decision.
>
> Maybe there are others, but that's all I've got.
>
> I would say the one really good way to avoid taxes permanently is 
> through retirement plans. These allow you to defer income in high tax 
> bracket years and pay it in later lower tax bracket years when/if you 
> stop working. There are some really good and cheap (even free) options 
> for sole proprietors. Since you have employees your options will be 
> more costly, but I can think of worse things than spending some money 
> to help your employees save for retirement while you spend less on 
> taxes both through the business deductions and the personal savings of 
> deferring your own income.
>
> On Fri, Sep 22, 2017 at 12:02 PM, Rob Laporte <rob at 2disc.com 
> <mailto:rob at 2disc.com>> wrote:
>
>     Hi Rich,
>
>     Thanks for the helpful info. I did invest in cultivating new
>     talent via paid training and some billable this summer and,
>     currently, with a friend’s brilliant son at Hampshire College,
>     hoping at least one of them will join DISC upon graduation.
>     Without the equivalent of law schools and the bar exam in search
>     marketing, finding and cultivating the next generation is a worthy
>     expense. And you just bumped up on my list considering buying in
>     late 2017 an annual subscription to some of the search marketing
>     SAAS’s that I usually rent month to month as needed. Of course
>     improving software and processes is ongoing, but bumping that up
>     makes sense too.
>
>     My quick look through your daughter’s www.amherstarchery.com
>     <https://www.amherstarchery.com/> reveals a great looking, highly
>     usable site. I hope that business is prospering.
>
>     I’d be happy to discuss any of the above at your convenience.
>     Perhaps email me a good time for you.
>
>     Best Regards,
>
>     *Rob Laporte*
>     Founder & Managing Partner
>     *DISC, Inc. - "Making Web Sites Make Money"*
>     413-584-6500 <tel:%28413%29%20584-6500>
>     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>
>
>     *NOTE:*Emails can be blocked by spam filters throughout the web.
>     If you don’t get a reply within an expected span of time, please call.
>
>
>
>
>>     On Sep 22, 2017, at 12:33 PM, Rich Roth - Webmaster
>>     <webmaster at hidden-tech.net <mailto:webmaster at hidden-tech.net>> wrote:
>>
>>     Rob,
>>
>>     Yes, but -- Tax deductible expenses only include capital expenses
>>     to a certain degree -- check the rules
>>     for section 179 deductions.
>>
>>     Buying a business usually means a capital expense -- that is
>>     because you are mainly buying client revenue and name value.
>>
>>     you might be acquiring operating expenses for the year, although
>>     what expenses does a small business have ?
>>     You might be buying inventory -- so that would be key to making
>>     it worth deduction.
>>     An example of this is my daughter and husbands business:
>>     https://www.amherstarchery.com/ <https://www.amherstarchery.com/>
>>     While mainly a school, they also sell archery equipment they
>>     re-sell or make.
>>
>>     Yeah, it's a challenge I've seen before, the best solution I've
>>     found is to bunch expenses on alternate years.
>>
>>     Another idea more in your field is to expand by taking on
>>     projects that would cost, esp, staff expenses,
>>     that would than create more revenue or sell-able products or
>>     online services, esp SAAS,
>>     such as SEO related Wordpress plugins that need your service to
>>     operate.
>>
>>     Would be interested in discussing such ideas.
>>
>>     And for reference, not an account, just 30 years of running small
>>     businesses.
>>
>>     Rich
>>
>>     On 9/22/2017 11:48 AM, Rob Laporte wrote:
>>>     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 <tel:%28413%29%20584-6500>
>>>     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/>
>>>

-- 
Rich Roth
Webmaster/Steering Committee Member
Hidden-tech http://www.hidden-tech.net
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