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

[Rob Laporte]

Thanks for the input Rich, Terran, and Andy,

All very sound thinking. Steve Chamberlin is my CPA, and I will run this all by him. My firm’s Full Partners including me have profit share and their own retirement plans, and I agree that’s probably best. Part of my thinking was motivated by the extraordinarily high valuations of securities now, but I suppose the right Vanguard investment vehicles would avoid the ~50% decline if we hit historic CAPE averages soon. And yes, Vanguard is absolutely the way to go—so much cheaper that the others, and 0.2% fee index fund investing in the long haul beats pretty much all actively managed portfolios, notwithstanding the variances from that rule that, statistically, must happen here and there within a short span of years. 

Best Regards,

Rob Laporte
Founder & Managing Partner
DISC, Inc. - "Making Web Sites Make Money"
413-584-6500
Rob at 2disc.com
www.linkedin.com/in/2disc
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 9:23 PM, Rich Roth <webmaster at hidden-tech.net> wrote:
> 
> 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 <http://www.hidden-tech.net/>
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