Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next
Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 15349  
Subject: Re: Buying a business as an investment Date: 6/2/2012 10:51 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
First question is what kind of financial planner/lawyer/CPA can I talk to about the pros and cons of buying the business? I'd like to talk to ONE person who has enough expertise in the relevant areas without having to bounce around between a lawyer, a CPA and a financial planner.

I don't think that's possible, if you want the correct answers. You need at least an attorney and a CPA to help you evaluate the business in their different areas of expertise. If you want a financial planner to help with investment questions, those questions aren't going to be answered by the attorney or the CPA.

As for the open-ended question, I'm looking for advice if buying a business is a sane investment.

First question I'd have - if the business really is expected to continue to throw off the kind of income that it is currently generating, why does he want to sell? Have you seen the tax returns to confirm it's actually producing that much income? Is there also an investment of your time in the business, that could be used in earning other income? If so, how are you accounting for that? If not, we get back to the question of why he would want to sell a passive income stream that returns 30% annually before taxes.

I would ask over on the tax board about your tax assumptions. How is the business taxed? Corporate rates are different than individual rates, if the business files as a corporation. If the business income flows through to your individual return, are you counting the self-employment tax as part of your taxation?

Your assumptions on 33% taxes on your investment income is incorrect, IMO. Long term capital gains are currently capped at 15%. Add in 8% for CA tax, and you get to 23%, not 33%. Then, you don't have to realize that tax every year - only when you sell - so your compounding assumption is incorrect, if you keep the same investments for more than one year.

AJ
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev | Next

Announcements

TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Apple

The Saddest Place on iPhone Day
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement