Demystifying taxes for first-time business buyers

I’m going to share some business-buying tax tips with you that will save you a lot of money down the line.

Taxes are usually an arcane subject... but not in this case!

When it comes to taxes and business acquisitions, there’s only two main things you need to know:

How to structure your deal, and how to structure your company.

Here’s the rundown 👇

Your deal structure

There are two main elements that determine the price of a business acquisition:

Goodwill — the company’s intangible value beyond its physical assets, like brand and reputation...

And assets — like trucks, heavy equipment, and real estate.

Assets depreciate in value over time, which lowers the amount of taxable income you’ll have to report at year’s end, and in all the years following.

Goodwill, on the other hand, does not depreciate.

So, we want to structure the deal in a way that maximizes depreciation!

The more assets, the better.

For example:

Let’s say you’re buying a business for $1 million, where $600k of that is classified as goodwill, and the other $400k is assets.

If those numbers were reversed, you’d save a lot more tax money in the long run.

Make sense?

Alright, next item...

Your company structure

This is most important once you have multiple companies.

Here’s the key ingredient:

When you set up an LLC, it’s considered a pass-through entity.

This means income gets passed directly to the owner, who then pays personal income tax on it instead of corporate tax.

So if you create an LLC holding company, and use it to acquire and claim 100% ownership of five other LLCs…

You can then send all of the profit they make to that holding company, pay yourself a fixed salary, and invest the rest of the money into other businesses and assets.

The big perk of this setup is:

You can elect for your LLC holding company to be taxed as an S-Corp!

Now, you can mark your salary as a business expense instead of income.

Then, you can take the remainder of your pay as distributions, which will typically be at a 5% to 7% lower tax rate.

This also allows you to write off expenses like long business trips, or new equipment for your office.

Not a bad deal for a bit of extra paperwork!

Business acquisition isn’t a game for everyone...

But contrary to popular belief, it IS something that a regular person can do.

(It’s not just for private equity groups!)

One smart acquisition can totally replace the income you’re making at your 9-5, and give you leverage to keep scaling that income year over year, endlessly.

Or, you could even simply invest as a silent partner for an excellent source of passive income.

If that interests you...

Just fill out our Investor Survey here, and tell us what types of deals you want to learn more about.

More acquisition tips and strategies coming your way every Tuesday and Thursday — see you then!