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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 15377  
Subject: Re: Buying a business as an investment Date: 6/2/2012 10:51 AM
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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.

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