quote:
Wait to you experience a big profit and have to have cash to pay taxes but all your profit is in equipment or receivables or something and you have to raise cash to pay taxes.

One of the biggest thing republicans and Obama could do now to help the economy is to allow domestic corporations to write their capital expenditures off like a cash basis farmer does. Over the long run it would be tax neutral but it would help business keep cash in their business while they are growing and investing.

All of equipment is being purchased up front with cash. The business is a catfish farm, btw. We'll have cash on hand for taxes and still enjoy the benefits that farmers get in regards to tax breaks. All sales will come in the 4th quarter so our net taxes will be paid on a cash basis and all of my customers pay in advance anyways rather than on credit because they want the fish in the early spring but pay for them in late fall for tax purposes

It may sound odd to have a farm set up in this way, but it's been common in this industry due to it's high investment/high return compared to row crops. There was one operation, aqua pro farms, who actually went public and had over 15k acres and over 50 million in assets.

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Posted by I B Freeman

Member since Oct 2009

27843 posts

Posted on 11/10/14 at 6:34 pm to deltaland

quote:
The business is a catfish farm, btw. We'll have cash on hand for taxes and still enjoy the benefits that farmers get in regards to tax break

You have a very profitable business if in the first year your are able to write off all your equipment in year one on a cash basis and still have income tax obligations and money to operate your business and replace your inventory and pay your taxes.

If you invested all of your $2 million in equipment and are able to pay taxes on that on a cash basis then your profits were over $2 million significantly.

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Posted by soccerfüt

Location: A Series of Tubes

Member since May 2013

66157 posts

Posted on 11/10/14 at 8:15 pm to deltaland

quote:
catfish farm

Amazing that I know of several really smart, well-connected business folks have tried this over the past decade and lost tons of money and got out with their tails tucked between their legs.

I guess you and your business-savvy partner will be different.

If it seems too good to be true, guess what? It is.

Good luck, you absolutely will need it.

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Posted by Poodlebrain

Way Right of Rex

Member since Jan 2004

19860 posts

Posted on 11/10/14 at 11:04 pm to deltaland

You shouldn't have to worry about income taxes until the business begins to generate profits. And if the initial capital is in the form of notes with warrants allowing conversion to equity, then you shouldn't have to worry too much about taxes or paying dividends to the investors. You will be paying them interest which is deductible which reduces the corporation's income subject to tax. And you shouldn't have to worry about dividends since the corporation will most likely be pouring all after tax earnings into expansion of the business operations.

So, I wouldn't worry too much about the taxes on dividends. I'd focus on making sure you get plenty of stock options as compensation while the business is expanding, and hopefully getting ready for an IPO. That is where the big payoff comes for the key players.

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