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Can I write off purchase price?

Discussion in 'Business & Tax Advice' started by akiaki, Sep 22, 2011.

  1. akiaki

    akiaki Registered Member

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    Hey has anyone bought an already-built site or other business for a non-trivial amount of money?

    All the sites and businesses I see advertised on the net appear to be priced at about 3 times their yearly net profit. Fair enough, but after getting taxed at around 30%, it will take you 5 years before you start seeing any profit -- and that assumes the business will continue to prosper the whole time.

    Am I just too impatient? Five years seems like a LONG time to wait for an investment to pay off.

    So the million dollar question is -- can I write off the purchase price as a business expense? Can it be amortized or whatever that is (deprecated, something like that)?????

    Basically, if the money you invest in buying into a business can count against your profit, then you will start making profit in a much more reasonable (to me) time frame.

    TIA
     
  2. teamred

    teamred Newbie

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    Yes you can if you are a legit business but when you write something off (business expense) you are only taking that amount of money, for example say 1,000.00, the write off is that you do not pay income taxes on that amount. You take your total tax libility and deduct all business expenses and pay the standard 15% if you are like a c or s corp. for the remainder of profit you show.
     
  3. volund

    volund Senior Member

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    Yes the purchase would be a legitimate business expense so it would be deductible. Not sure what the exact rules are on when you have to depreciate something over multiple years. I know it is a dollar amount/Type of purchase thing but not anything I have dealt with in relation to IM or websites. If you are talking about investing a lot of cash you may want to run it by a cpa to make sure you follow the best procedures for any purchases and deductions.
     
  4. akiaki

    akiaki Registered Member

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    Yah, for sure I'm going to ask a CPA if it comes to that, but I was wondering if anyone's dealt with this before and could give me a quick tip. I know how to write off business expenses on my taxes - pretty easy on a schedule C, but for a business purchase that is more money than the business takes in in a single year, it seems like that's a whole different ballgame.

    Plus, the purchase technically isn't putting anything into the business itself, which confuses me. The business remains the way it was - the transaction is just between the old and new owners for the privilege of owning it. Is that really a legit deduction?

    Hmmm
     
  5. volund

    volund Senior Member

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    A website is an asset not a business in itself. Really no different than wal-mart opening up a new store. Your business will own that website and maybe others as well.

    Remember any loss will deduct from any other income that you have as well so if you make $50k from your job and your business shows a $20k loss than you only pay taxes on the $30k difference. You can also use a loss from one business to offset profits from another as well. You can structure your businesses all kinds of different ways to best take advantage of the tax rules. You can also bring forward losses as well to the next year, not sure exactly what the limits on that one are but any decent cpa will know.
     
  6. SmokeScreen

    SmokeScreen Registered Member

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    In real life a average of 3-10 years depending on the industry is very common. You can not write off the original cost of the business, but you can write off costs of running the business and/or capital expententures. Unless you are talking about a LOT of money, over 100k, then there isnt any easy way around that.
     
    • Thanks Thanks x 1
  7. akiaki

    akiaki Registered Member

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    You're saying 3-10 years to recoup your investment is expected and quite normal? Yow. My hard-earned money! ;)

    So if that's the case (can't write it off) the take-away is BE CAREFUL, especially with all these sites people are flipping, because chances are you won't see the kind of income they claim to be generating for the next five years!!! (Wonder how many buyers on Flippa really made money on their purchases in the long term...)

    volund, however, seems to think you CAN write off the purchase. I'm not sure why, but I tend to believe SmokeScreen.... anyone want to bat this back and forth some more? (I'm specifically interested in a business purchase, not just adding a website to an existing business portfolio.)
     
    Last edited: Sep 23, 2011
  8. SmokeScreen

    SmokeScreen Registered Member

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    You are thinking of the investment in a business like this, 1) you can build a business by yourself, block by block, from day one, all expenses are against the income, but will take you a long time to get to where you want to be, or 2) you can get a business and be making xxx,xxx per year to start with.
    It really depends on what you have now.. As my investments and savings grew, I used that method to get a business, a few apartment buildings and such. Some businesses I have made 15% ROI year to year, the apartment buildings I bought this year I make around 27-35% ROI.


    Basically I use both strategies to increase my income, starting a business online doesnt cost much, but then I have $ sitting around. I use that to invest in other forms of investment other than online
     
    Last edited: Sep 23, 2011
  9. akiaki

    akiaki Registered Member

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    I am? How do you know what I'm thinking? ;)

    Well, actually, you were right. :) That is how I'm thinking, and I'm in a similar position, but waiting five years feels iffy for me to recoup my investment, not to mention make any profit. So how is it you calculate a ROI in the first year if in fact you cannot write off the purchase price? Unless you bought it for a song, in which case, I want to know where you find a deal like that! :)

    Thanks!
     
  10. SmokeScreen

    SmokeScreen Registered Member

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    ROI is calculated on the profit divided by the investment, for example, if you invest 50k and get a 20k profit after expenses the first year, that would be a 40% ROI. (20,000/50,000)*100=40%, at that rate it would take you 2.5 years to pay off the initial investment.

    At the end of the day, if you build the business it would cost you less in the long run, but may or may not be successful, and would take longer to get to that level.
     
  11. akiaki

    akiaki Registered Member

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    Ah, OK, sorry, I wasn't thinking straight. The critical factor here, however, is that you'll be taxed on that 20k profit, so if the original 50k was cash in the bank, you won't *really* see a full return on your investment for substantially longer (unless the purchase can be included as some sort of expense, which I think we're saying it cannot be).

    Well, you never know. :) But in most cases, you're right.

    Thanks!
     
  12. SmokeScreen

    SmokeScreen Registered Member

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    There are many ways to skin a cat my friend, find what way you enjoy and is most productive for you, and you will be a happy man for decades to come.