A Guide to Buying a Small Business

Determining How Much You Can Afford to Invest!

Before acquiring any business you must to determine how much of an investment your looking to make. When making this consideration it is important to consider not

only the the monetary value, but the amount of time and effort your willing to commit to your new business as well. Typically, the minimum down payment needed by a buyer is between 20% and 30% of the purchase price of the business. For example, if the business purchase price is $200,000 then in order to finance the business the buyer’s down payment needs to be $40,000 to $60,000. Obviously, you are always able to put down more, or purchase the business without obtaining lender financing.

In addition to that initial purchase price, possible expenses a purchaser needs to consider are the costs of inventory, supplies, escrow fees, license and permit fees, franchise transfer fee (if applicable), and other associated costs of acquiring the business.

And then you have to set criteria of desired business. Which includes location of business, type of business, price range of business, desired income of business.

Finding a Business to Invest In!

After you decide how much you are looking to invest and the type of business your looking to become involved with, You will need to begin to look for a business you can acquire that meet those criteria.

There are a number of ways to find businesses for sale. You can search business through one of the multitude of online business listing services, search local newspapers and trade publications, or go through local business brokers and sales agents. One often overlooked avenue is professional connections. Lawyers, Accountants, and other professionals often learn of business’s looking to sell even before anyone else does, so building a good report with these types of professionals can help you find the deals that not everyone knows about.

Understanding the Business and Making an Offer!

You have found a business that you want to purchase, now what? You will need to evaluate the business. While their are many methods of evaluating a business’s value most of them rely on determining the potential income stream and equity that business has the ability to offer. To learn more about how businesses are valued, click here.

You should sit down with the current owners and look at how the business is currently operating. Try to identify what the business is doing right and potential areas which could me improved, streamlined, or eliminated. Learn the businesses core values and philosophy and see if that is the right fit not just for your budget, but your personal business philosophy. While you can change the way systems operate when you take over, it is very difficult to change a businesses culture, so you want to make sure it is something you can grow with.

Only after you have done those steps can you make decision whether to pursue purchasing business or not. If the business seems like the right fit for your business philosophy and budget it is time to create Purchase and Sale Agreement. This document will have all of the details about when, how, and how much the business will sell for. It may also include things like agreements of former owners to stay on for a transition period, or other things you come up with.

When you are crafting an offer, make sure the document includes the following items: Your offering price, Initial deposit amount, financing terms, closing date. In addition to these fundamentals it may be advantageous to add things to the offer such as loan approval contingencies, lease information and lease transfer approval from landlord, requirements that the buyer be able to obtain all necessary licenses and permits, required franchise information (If your dealing with the a franchise), the buyer’s Satisfaction of books and records, how closing costs are to be allocated, a buyer training session with seller (Or stay on provision), guarantees on the business equipment and fixtures, information on inventories and supplies amount, non-compete agreements, and any other important details that pertain to your deal. This offer is now your starting point.

Negotiating with the Seller!

Now that you have crafted your offer it is time to present your offer to the seller. When you present the offer know you will likely be countered. Know your sticking points and where your willing to make concessions. No is the time to negotiate the price, terms, and conditions. It may take several rounds of going back and fourth to get the right deal but eventually, with any luck, you will settle on a final price and terms of the deal.

Once you have arrived at your finalized terms you will need to dot the I’s and Cross your T’s. Obtain needed licences, secure any financing if needed, make sure leases or other steps are taken. You want to make sure everything is in order for the most important step in squiring a business.

Closing the Deal!

All of the terms have been worked out, financing has been secured, and everything is ready. Now is the time when you sign over the business, pay the seller, and handle any needed legal steps. Congratulations, your now the owner of your new small business.

Thieves Make Off With $64 Million in Bitcoin from NiceHash Hack! Miners and Investors May be Able to Claim these Losses as Theft and Casualty Losses.

As the world watched Bitcoins price soar to new heights last week, thousands of Bitcoins went missing from the popular mining application NiceHash. The company, which makes it easy for people to mine the most profitable “alt” coins and pays you out in Bitcoin, was robbed of over 4,700 coins at some time in early Wednesday morning, December 6, 2017. This not only left many in the crypto-currency community with their mining rigs running cold (the process of mining produces an immense amount of heat, so a cold miner is a broke miner), but it also left those same miners missing possibly thousands of dollars or more of mining profits. In addition, it left those who had money stored through the company’s wallet system high and dry. http://www.bbc.com/news/technology-42275523
The IRS has made it clear this year that it expects miners to report all income they receive from cryptocurrency, and based on this news, the IRS will be coming down hard on those who fail to report income. But reporting this income also means Miners will be able to deduct these kinds of losses on their tax forms as well. In the case of the stolen coin using the casualty and theft loss deduction.

Depending on your individual tax situation you may be able to claim the losses as either a personal return under Schedule A, or a business loss under Schedule C of the 1040 Form. https://www.irs.gov/taxtopics/tc515.

Personal Losses

If your tax situation requires you to claim any lost coins as a personal loss, you will be subject to the same deduction rules that apply to all itemized deductions for theft. To calculate the amount a person is eligible to deduct you must subtract $100 from the value of the loss then subtract 10% of your adjusted gross income (subject to a maximum of your adjusted basis in the coins). This number will give your allowable loss deduction. It is also important to note if this loss exceeds your total net income for the year, you’re eligible to carry over a net operating loss (NOL) on your return to future years even if it is not business income. (This is an exception to the general rule which exists for casualty and theft income.)

To record and report all this information to the IRS you will need to file a Form 4684 (Section A).

Another important thing to note is that as this deduction is an itemized deduction you can only take the greater of the combination of your itemized deductions or the standard deduction. Thus, this strategy may not make sense if your losses are small, or you can not combine the amount with other itemized deductions.

Business Losses

Losses which are considered business assets from the theft can also be deducted. Following a similar procedure of filing a Form 4684 (Section B), one can deduct the losses against their business income. One benefit of this method is that these deductions are not subject to the same value reduction and can be used to directly offset business income. If these losses exceed income, then you can carry over a NOL to subsequent years.

At the end of the day, the tax right off is never going to make up for the entirety of the loss from any theft. But with the IRS coming after the cryptocurrency market with a vengeance this year, it may help to take some of the sting away to know that Uncle Sam will cut you a small break.

 

UPDATE!!!

NiceHash has released a press release, and while no details were given it seems they may make whole the people whose accounts were drained. It will take time but we are working on a solution to ensure all users are reimbursed. “In an exclusive interview with WikiTribune, Marko Kobal, the CEO of NiceHash – a Slovenian-based crypto-mining marketplace – said that his company is “working on a solution to ensure that all users are reimbursed” for the $60m hack that took place last week.” This means you may not be able to deduct these losses. As of yet, it remains unclear as to whether the company will ever recover, but until more information comes out, a possibility exists that the coins will be returned or reimbursed by the company.

The bad news if this reimbursement goal is true is it will mean no Theft and Loss deduction can be used on the missing funds (Until we know for sure the money is stolen and not coming back). The good news, if this news is true, Nicehash patrons will have your missing Crypto-Coin back.

Settling Financial Affairs When A Loved One Dies

By Steven J. Weil, Ph.D., EA, President, RMS Accounting

Losing someone close is always a sad, somewhat frightening, and quite confusing experience. For the person who must also deal with the financial and legal implications, it carries some heavy responsibilities as well. To assist in this process, here is an outline of what should be done from a tax and financial standpoint in order to settle the affairs of one who has died. While some of the issues are hard to face, it is for the good of all concerned to deal with them openly.

Overview of the Process

It’s best to initially look at the whole picture. The first, and saddest decisions come early on at the hospital shortly after death. The attending doctor has the responsibility to sign the death certificate and decide whether an autopsy is required. For most states, unless the death is due to violence, or suspicious, unexplained causes, no autopsy is performed.

However, there may be instances where you would want an autopsy done in case the cause of death may relate to a hereditary issue. If so, your time to make this decision is limited. Similarly, if the deceased was an organ donor, time is of the essence.

Next, decisions must be made regarding funeral arrangements. It is important to find out if the deceased had any specific wishes in this regard, and to coordinate with family and friends. Following this, a number of financial and legal decisions will be required.

The estate of the deceased must be settled. That is, remaining net assets must be transferred to legal heirs. This is called the probate process. In conjunction with this, various federal and state tax returns may be required to be filed on behalf of the deceased.

Succession (“Inheritance”) Tax Returns may be required as well as a final Individual Income Tax Return. If the deceased has an estate that is yielding income while it is still being probated, a Fiduciary Income Tax Return may also be required.

A “Final Accounting” is also done at the end to verify with the legal authorities that all the net assets have been distributed properly after all allowable expenses have been paid.

Within some of these steps are important issues that should be discussed in detail. Since the courts hold the executor of the estate responsible for the proper and timely filing of various documents, it is essential to have a good, working knowledge of these various aspects and the due dates involved.

Included at the end of this text are several checklists that identify in detail what should be done, and what steps must be taken in sequential order for tax purposes.

Get Copies of Death Certificate

You will need to submit copies of death certificates to various places, so make sure you have a number of copies. These are provided at either the hospital or, more commonly, by the funeral home. The cost for extra copies averages $2-8 dollars each. To claim insurance benefits, employer benefits, transfer of assets, etc., requires furnishing a copy of a death certificate.

Find The Will And Safe Deposit Box

Assuming you know that a Will was made out, it is important to find it as soon as you can since it may provide many important guidelines. It may contain burial and funeral instructions; it certainly identifies the person who will serve as the executor — the one who handles all the legal and financial matters after death. It also may list locations of other important papers such as life insurance policies, and safe deposit boxes.

Sometimes the Will may be inside the safe deposit box. Thus, you will need legal authority to open the box. If you can’t find the safe deposit box, you can do a local search of the banks with the help of a lawyer, and you can also contact the American Safe Depository Association in Indiana. They have lists for all participating banks.

What if you can’t readily find the Will? Try asking friends or relatives if they knew which lawyer was used by the deceased. Also, look through address books, file cabinets, checkbooks, or storage facilities to search for clues.

When someone dies without a Will, things are more complicated. Unfortunately, approximately 60% of all Americans don’t leave a Will, according to today’s statistics. In effect, they die “Intestate.” If this is the case, the courts will handle the matter based on the individual state law. They will appoint an executor, and all net assets from the estate will be distributed according to state laws, not necessarily the way the deceased may have wished.

Contact Professional Advisors

Getting a lawyer to handle the probate and estate process is an early priority. Most people use the same lawyer who set up the Will, but you are permitted to use any attorney with whom you feel comfortable.

You should also contact the professional who will handle the filing of the various tax returns. A mistake most people make is assuming the lawyer handles everything in the estate process. This is rare. While most lawyers will handle filing the Succession Tax Returns, they do not usually handle the Income Tax Returns, or the Fiduciary Tax Returns. These must be filed on a timely basis. So the tax accountant should be contacted early on in order that a coordinated effort can be made with the attorney.

Begin The Probate Process: Gathering Information

This is the complicated job of recording all assets and debts of the deceased, and all the pertinent financial records to comply with the Will, the tax laws, and the courts.

The first step is to locate all assets and debts. As we mentioned, sometimes the Will contains most of this information. But, even if it is listed, don’t assume it is up to date. If the Will had been drawn up years ago, many changes may have occurred to increase or decrease the assets and debts of the deceased. You must make a reasonable effort to do a preliminary inventory of the estate within specified time periods in accordance with state laws. Finding this information can be tedious. The information you will need comes from many sources, including life insurance policies, bank accounts, brokerage accounts, safe deposit boxes, stock certificates, bonds, real estate contracts, vehicle registrations, and old tax returns, to name a few. You should also check to see if there were any ties to various fraternal, military, or social organizations.

Once this information is gathered, a preliminary inventory is used to begin preparing the Succession Tax Returns and to account to the Probate court. The lawyer and/or tax accountant can assist in organizing these items.

The second step is to arrange for the payment of various benefits that may be available upon the death of a person. They include Life insurance benefits, Veteran’s benefits, Social Security, IRA’s, Keogh’s, SEP’s, and other employee-related benefits. Proper tax planning when it comes to the distribution of these funds (especially IRA’s) can be critical to the recipients. Thus, it’s important to get tax advice before you make the payments.

It’s also important to be thorough here because these benefits are not automatic; you must apply for them by providing proof of death, and proof of the beneficiaries.

Life insurance is usually the first to handle since the benefits can be distributed to the heirs within 10 days of notification. Life insurance proceeds do not have to go through probate (although they are subject to Estate taxes). Some tips here: Check with the employer of the deceased for any group life insurance. More than half of all life insurance comes from group plans. Life insurance policies could be in the safe deposit box. Coverage may also come from associations, fraternal organizations, Veterans Administration, credit card supplemental insurance (from death related to travel or accident), bank SBLI insurance, mortgage insurance, some medical insurance policies, credit unions, and others. If in doubt, go through the deceased’s checkbook for checks written out to life insurance companies or groups. You can also check with the American Council of Life Insurance in Washington D.C. to see if any participating companies are listed on behalf of the deceased.

Employee benefits play an important role. Did the person have any pension, profit sharing, stock options, or death benefit payouts available? Does worker’s compensation figure in if the person died from work-related injuries? If in doubt, ask for assistance. Most companies have a person or department that can help you in this area. Call them right away.

Military benefits may be available for deceased veterans. These benefits can be in the form of life insurance, burial insurance, pension benefits to survivors, reimbursement for medical bills, or a lump sum death benefit. Your local VA office can help, but you’ll need to provide information on the service record. Look for discharge papers to get this information.

Social security benefits can be sizable if the deceased left a spouse with minor children. There is also a small death benefit for funeral expenses. You can get help here from the local Social Security Administration office. If the deceased had been receiving social security or pension checks up until death, keep in mind that any retirement checks of this nature that continue after death may have to be returned. The Social Security Administration, in particular, does not immediately know about a person’s death, and there can be a significant lag. It’s a good idea to contact them immediately to avoid this hassle.

Probate And Inheritance Process

There are two related issues to handle. First, you must probate the estate. That is, implement the transfer of assets from the title of the deceased to the heirs. This involves a series of steps designed to finalize this transfer. The death must be stated in an “open forum” which customarily means it is listed in the local papers, and, in some cases, sent to individuals directly (usually potential heirs and beneficiaries).

All known debts are paid out of the estate, and various legal documents (including a final accounting) are recorded with the courts to allow the assets from the estate to pass on to the beneficiaries. This process can take as little as one month or many years depending on the size of the estate, whether it is being challenged, whether the deceased died without a Will and the backlog in the Probate Court calendar.

Inheritance taxes are a separate function. While they share a common denominator in that the value of the deceased’s estate must be established in order to institute the process, the similarities end there. The Inheritance or Succession Tax function is designed to establish how much tax, if any, is owed to the federal and state governments.

The biggest chunk of potential estate taxes usually goes to the federal government. In effect, it is a graduated rate tax that is due on the net value of the estate. Due to various federal credits, if the taxable estate is less than $675,000, there probably will be no federal tax. Nor is there usually any tax if the entire estate is left to a surviving spouse who is a U.S. citizen. Beyond that, however, there is a federal marginal tax rate which can reach as high as 55% of the estate. Normally, this tax is due within nine months from the date of death. There are certain exceptions to this deadline and to the exemption amount if the deceased had a business or owned certain types of real estate. State inheritance taxes can vary widely from the federal laws. Your lawyer/accountant team is usually retained to handle these aspects for you.

Winding Up The Process

Once the Inheritance taxes have been paid and the probate process has been completed, the task is done. As you can see, it can be quite complicated. The more organized the estate is before death, the easier – and less expensive – the process becomes. Moral of the story: Get your own affairs in order before you die to save your surviving family and friends untold amounts of wasted time and frustration.

Steps To Take For Tax Purposes

1. Contact the lawyer, tax accountant, and other appropriate financial advisors you will be using to help with the estate.

2. Begin the inventory process of recording assets, their values at date of death, and any debts/liabilities the deceased had.

3. Apply for federal and state tax identification numbers for the estate, if needed.

4. Prepare federal and state Succession/Inheritance tax returns.

5. Handle accounting reports for Probate.

6. Prepare outstanding Individual income tax returns for the deceased.

7. Prepare Fiduciary income tax returns for the estate.

8. Do the final accounting to close the estate.

Summary Of General Steps To Take

* Make necessary hospital decisions shortly after death. Autopsy or not, picking up personal belongings, donating organs, and getting copies of death certificate.

* Locate Will and safe deposit box, and contact attorney and other appropriate financial advisors.

* Arrange for Funeral/Memorial, notify friends and family.

* Contact decedent’s employer for details on death benefits. Locate life insurance policies, apply for proceeds. Arrange for the continuation of payment of decedent’s bills.

* Notify Social Security, Veteran’s Administration, and other associations for possible benefits.

* If required, notify Post Office for address change.

* Contact various financial organizations of deceased: banks, mortgage holders, retirement plans such as IRA’s, Keogh’s, brokers, mutual funds, people who owed money to the deceased, insurance companies holding auto, fire, medical insurance policies, DMV, credit card companies.

* Arrange for miscellaneous change and/or shut off of service agreements: Utility companies, oil companies, newspaper and periodical subscriptions, clubs, cable TV.

* Follow up on various tax matters as previously listed.

* Dispose of decedent’s assets, and belongings according to Will. If donating clothing, furniture, etc. to a charitable organization, provide a detailed list and get a receipt for tax deduction purposes.

* Re-evaluate your own situation regarding your Will, and information available to survivors in event of your sudden demise. Make it easier for your survivors than it was for you.

10 MISTAKES THAT CAN CAUSE A GOOD BUSINESS TO FAIL

By: Steven J Weil, PHD, EA, LCAM

According to the U.S. Small Business Administration, there are around 28.8 million small business located in America. Small businesses, which maintain fewer than 500 employees, account for 99.7% of all business in the US. Around 82% of small businesses fail due to cash flow problems, a US Bank study discovered. But, Dr. Weil says that cash flow isn’t the only issue that small businesses face. Below are 10 main reasons why business in America fail:

  1. Having too strong an attachment to sales at any cost.
    While everyone knows sales are important, what is often forgotten is that sales without profits serve no purpose. Every sale needs to contribute to the bottom line.
  2. Cash flow is the lifeblood of every business. If you run out cash, the business dies. It’s important to understand what cash you do or don’t have for a given undertaking. Your cash flow is impacted negatively when you are carrying accounts receivable for creditworthy but slow-paying customers.
  3. Know your true costs. A business owner who forgets to include costs because they are not paid at the time of a sale can quickly find the business in the red with unaffordable payments due.
  4. Understand your sales tax and other tax obligations. Failure to collect sales tax from a customer does not get you off the hook for paying that uncollected sales tax. By the time an audit comes about, your lack of knowledge could cost you tens or even hundreds of thousands of dollars.
  5. Be sure to follow all employment laws. Both the state and federal governments have a say in everything from minimum wage to overtime. Even if your employees agree to something less, you can and will still be held accountable to comply with the law. Failure to do so can create huge financial liabilities.
  6. Keep good records, and do keep business and personal information separate. Not only will you need to have books and records for your business at tax time, but having accurate books and records can help you spot developing problems before they drag your business under.
  7. Consult experts when the need arises. Guessing at the tax consequences, labor rules or meaning of a contract can cost you everything. When you are not sure, consult an accountant, attorney or whatever expert. One thing you can be certain of is that consulting an expert to avoid a problem will be a lot less expensive than using an expert to resolve a problem.
  8. Be careful about borrowing. Getting cash today by pledging credit card receivables or factoring can be expensive and rob cash flow that you will need to operate. Be mindful of the cost of any borrowing along with the repayment terms.
  9. Never risk more than you can afford to lose on just one customer. We have seen more than one business allow a “good customer” to run up a large account or place an order so big that failure to pay or a problem with the order can result in a catastrophic business failure.
  10. Never let just one customer be responsible for more than 10% of your total business. A business that has one or two customers that represent 50% of its total sales is not really a business; it’s a de facto employee without the benefits.

 

Quotes & Media

Media Quotes &  Recent Press

LifeLock – Tax Fraud: What You Need to Know 08/10/17

GoBankingRates – Know Before You File: Tax Breaks for 2017  01/17

Senior Outlook Today – Tax Strategies with Retirement in Mind 12/01/16

National Financial Educators Council – Teaching Children Personal Finance 01/16

CNBC – Smart ways to gift money during the holidays 12/14/15

MainStreet 02/09/15

FoxBusiness Web Site 02/11/15

Retailmenot Blog 02/19/15

Learnvest Web Site 04/14/15

SELFLENDER 09/28/15

Free Seminar

2016 – 2017 Tax Planning Seminar

Join us Wednesday, November 30th at 6:00 PM for a seminar on Tax Planning for 2016 and beyond.   We will cover year-end tax planning moves you can make to reduce your 2016 tax bill for both individuals and business.  Along with actions you can take there will be plenty of time for questions and even a look into our crystal ball of what effect the election will have on your taxes and what you can do about it.

Tax Seminar Picture

Space is limited so make your reservations early.  Call 954-563-1269 between 9AM and 5PM Monday through Friday to reserve your seat and a chance to attend this FREE SEMINAR.

New Economy

CHANGING BUSINESS MODELS AND METHODS

COMPLICATE 2016 TAX RETURNS

Bob Dylan said it best:  “The Times They Are a-Changin”!

In the business world, things are changing, sometimes faster than rules can be written.  Asked about what they do for a living, we hear from many clients that they are part of the new economy.  This new economy is ever changing and includes things like driving for Uber, renting out rooms or entire homes through Airbnb, buying and selling bitcoins and funding businesses using a crowdfunding site. Add to this sales made through eBay or Amazon.

While these new-economy income generators often provide extra income, they are also complicating the tax returns of those involved. Once popular multi-level marketing plans are being replaced by a number of income-stream possibilities. They help people make up for hours lost to employer cutbacks as well as a job market that is just not what it used to be.

It’s important to consider the tax consequences of these activities. Since many are so new, not every taxpayer or even every tax professional understands them. To make matters worse, the tax consequences can vary from person to person.

For example, if you rent out your home with Airbnb for 14 days or less during the year, the rent is tax free, and the expenses are not deductible. If you rent it out for 15 days, you must Airbnbreport all rent collected and provide services with the rental (such as cleaning, breakfast, et al.). The rental gets reported on Schedule C, making any profit subject to self-employment tax.  If the rental has losses, hobby loss rules may apply. Moving income off of Schedule C to the front of your 1040 and moving the expenses to Schedule A makes them (along with other miscellaneous deductions) subject to a reduction equal to 2% of your adjusted gross income. All this makes record keeping more important than ever and means that having a knowledgeable and qualified tax pro is imperative.

Enjoy driving and like to make a few extra dollars doing it?  Uber or Lyft might be good options for some extra income, but you will want to keep records of not only the miles you Logo Uberare paid for but also those you put on the vehicle while driving around between pick-ups and drop offs trying to get additional fares. You should also keep track of the hours spent so that you can show that you had a profit motive even if you don’t actually earn a profit.  You also need to track personal use vs. business use of your vehicle. One of the questions we are always asked is, “Which is better, the standard mileage rate or actual expenses?” The truthful answer is that we won’t know until we add up both and see which is best for you. This is why it’s so important to keep good records of all your expenses.

Many people are using a crowdfunding application to raise money for all manner of things, such as business start-ups, arts projects, presales of new products or services and even to Crowdfunding logohelp out someone who has suffered a medical or financial setback. What the money is raised for can have a huge impact on how it’s being taxed or even if it is taxed at all. Funds might be considered current taxable income, investment capital or even tax-free gifts. It all depends on how the money is raised and what is promised to those doing the actual funding in return for the funds received.

Bitcoins are a new digital currency based on a very complicated and involved system. Transactions are made with no middlemen – meaning, no banks! Their appeal is that Bit Coinsthere are no transaction fees and no need to give your real name. They may be virtual, but they are not tax free. They are taxable income at the time received if they are received from the sale of property or as payment for services, based on their fair market value (FMV) when received. Later, when converted to dollars or used for a purchase, there could be a taxable gain or loss depending on their FMV when exchanged.

At the very least the new economy brings new changes to both taxpayers and accountants. It requires complex choices and requires careful planning. It also requires a knowledgeable professional who understands the tax laws and as well as the activity you are participating in.