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General Business Discussions A place to talk about general business discussions.

The evil 5 letter word "TAXES"


General Business Discussions

A place to talk about general business discussions.
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  #1  
Old 07-15-2011, 08:12 PM
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Default The evil 5 letter word "TAXES"

This being my first year on my own I am learning all kinds of neat new things.
I have read many books and talked to many business owners and everyone has been a great help.

So I have a question about my pending year end.

Is it better to end the year with a profit in the bank ?
or
Is it better to reinvest your profit back into the company (equipment advertising etc) and have a 0 balance at the year end ?

I have been setting a side for the sales tax portion so I have that covered.
But which of the above is better for me in the end as it applies to my income Taxes ?
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Old 07-15-2011, 08:48 PM
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Let me pick your brain for a moment on this because I think this is a very important topic many many new lawn care business owners deal with.

Are you leaning towards one or the other?

What's your view on the pro's and con's of each?
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Old 07-15-2011, 10:14 PM
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its a hard question to answer .If you have money in the bank ,you will have an easier time getting a loan ,mortgage etc. ,if you have no money you will pay less taxes but not have any luck when you darken the door of your bank looking for money to buy something with .Talk to an accountant because either situation has benefits and issues to deal with .
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Old 07-15-2011, 10:22 PM
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Let's put it another way. Say you are in a 30% tax bracket to make things easy for the math and you have $1,000 profit. There are some things you need to think about. This goes for mortgages too.

You have a 1k profit so your taxes would be $300 at 30%

Now you are going to need money come spring when things finally thaw out up there again.

So you want to spend $1,000 just so you don't have to send the government $300?

Same goes for not paying off mortgages, you would spend 10k in interest to a bank every year just so you don't have to pay the government 3k?

Just something to think about.
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Old 07-16-2011, 07:13 AM
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Quote:
Originally Posted by Steve View Post
Let me pick your brain for a moment on this because I think this is a very important topic many many new lawn care business owners deal with.

Are you leaning towards one or the other?

What's your view on the pro's and con's of each?
I would like to be able to show a profit at my year end Just to be able to show the kind of success I have had.

Not sure of the pro's and Con's yet this is why I asked the question.
I suppose having a profit will cost me money while breaking even won't ???
I not really sure at this point but maybe I will be enlighten in the coming days.
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Old 07-16-2011, 07:15 AM
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Quote:
Originally Posted by bruces View Post
its a hard question to answer .If you have money in the bank ,you will have an easier time getting a loan ,mortgage etc. ,if you have no money you will pay less taxes but not have any luck when you darken the door of your bank looking for money to buy something with .Talk to an accountant because either situation has benefits and issues to deal with .
This is not an issue with me as I am operating on a cash on hand bases, I did not borrow any money to start up and am not planning on becoming a Mega million Landscaper either.
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Old 07-16-2011, 07:19 AM
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Quote:
Originally Posted by The Cleaning Doctor View Post
Let's put it another way. Say you are in a 30% tax bracket to make things easy for the math and you have $1,000 profit. There are some things you need to think about. This goes for mortgages too.

You have a 1k profit so your taxes would be $300 at 30%

Now you are going to need money come spring when things finally thaw out up there again.

So you want to spend $1,000 just so you don't have to send the government $300?

Same goes for not paying off mortgages, you would spend 10k in interest to a bank every year just so you don't have to pay the government 3k?

Just something to think about.
I understand what your saying but wouldn't it be nicer to put the $300.00 toward a new weed Whacker instead of giving it to some politician to have a steak dinner ?
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Old 07-16-2011, 05:50 PM
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Having cash in the bank has nothing to do with the tax you pay, here in Canada.

You pay tax's on your net income after depreciation, depreciation in Canada has various rates depending on the piece of equipment and CCRA's estimate on it's expected life.

A company should always have retained earnings at year end which forms working capital in the new year.
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Old 07-16-2011, 05:55 PM
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Quote:
Originally Posted by Ducke View Post
I would like to be able to show a profit at my year end Just to be able to show the kind of success I have had.

Not sure of the pro's and Con's yet this is why I asked the question.
I suppose having a profit will cost me money while breaking even won't ???
I not really sure at this point but maybe I will be enlighten in the coming days.
There is a big difference between operating income and net income. Operating income is above the line and what a bank would look at if going for a loan or what a buyer of your company would look at.

Your comment on Interest VS tax's on Mortgages here in Canada is a lot more complicated than that.

You can apportion a percentage of your home towards the business and deprecate that portion to reduce your taxable income, should you sell your house it's a taxable capital gain at a business rate which is far less than income tax rates.
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Old 07-17-2011, 07:45 AM
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Quote:
Originally Posted by picframer View Post
There is a big difference between operating income and net income. Operating income is above the line and what a bank would look at if going for a loan or what a buyer of your company would look at.

Your comment on Interest VS tax's on Mortgages here in Canada is a lot more complicated than that.

You can apportion a percentage of your home towards the business and deprecate that portion to reduce your taxable income, should you sell your house it's a taxable capital gain at a business rate which is far less than income tax rates.
WHAAAAA See I knew if the government was involved it had to get complected. But I understand a bit better now.
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