Tax advice needed for partnership restaurant?
I am the bookkeeper for my friends who own a restaurant. They are husband and wife, in Virginia, opened for business in January 2010. I have several questions …
1. They lease/rent the building and most of the equipment. They pay ,000 month for "rent" and ,000 "lease liability". In Quickbooks I have it set up at rent expense for ,000 and then the lease as a fixed asset, so the lease liability ,000 comes off that. How do I account for the lease liability and that ,000 on the Form 1065?
2. The building has an upstairs which at one time was a small lounge/bar area for a previous restaurant. This couple remodeled the upstairs and made it into an apartment so they could live there and rent their personal home. I am accounting for the remodel costs as leasehold improvements, is this correct? Also, how do I then account for the leasehold improvements on the form 1065? I know I also have to separate expenses now for business versus personal use of the space and utilities. I also have to base it on the percentage of the year since they didn’t start using the personal space until July of 2010.
3. The business gross sales after returns and allowances was 2,000, so should I use materials and supplies expense instead of cost of goods sold, or am I better off to use the cost of goods sold since I expect their income for 2011 and beyond to exceed 0,000?
4. Depreciation (sigh) … The owners do not get a salary or guaranteed payment, and the business had a net loss of ,000 for 2010 (without figuring depreciation into that loss amount). Should I use Section 179 and carry it forward into the following years, or should I use a different depreciation?
I know this is a lot to ask and I may not have given enough info to answer all questions thoroughly, but any help is greatly appreciated!
Ok, here’s more …
1. So, I am depreciating the building / equipment as if it were purchased, even though it is only leased, is this correct? Is there a certain depreciation method I should use for this?
2. Why can’t I use leasehold improvements for the changes they made since they are permanent changes that will remain with the building (They added walls to make rooms and added a personal bathroom, with shower, tub, etc.) even if my friends don’t end up buying the property when the lease is up? I know they made these changes for their own personal reasons, but they do add value and change the purpose of that part of the property … in the future, it can be rented out as an apartment.
Yes, no, maybe?
3. According to 1065 instructions, because the business is a qualified small business, they can choose to expense materials and supplies that are not incidental rather than account for them as inventory. Am I misunderstanding that?
4. So, I should NOT use section 179 for depreci
Mail this post
I am thinking of buying this local gym. Do you think it is a good idea? ANY help would be great! thanks!?
I do not have the funds to buy a huge business so I’ve started looking small. I want to get my feet wet so to speak with buying, running, and then selling a business.
I have come across a local gym that has been there for 28 years. They have a website and an established brand. The asking price is ,000. The rent is 00 per month and the income for October was 00. There are only two pieces of equipment on lease and they are going to be bought out and included in the purchase price as well as all of the equipment in the gym. I believe the equipment alone may be worth the cost of they gym. That is all of the information I know for certain. I have just sent a follow up email asking for the financial statements for the past 3 years, for the number of employee’s and their total monthly salary, and for the business’s current liabilities and monthly expenses besides rent.
I have also asked very humbly how many hours each week the owner needs to put in and what is the real income of the owner after all of the expenses each month, just to get a better picture. Hopefully that wasn’t too much to ask?
My thoughts are that if it only requires 20 hours or so a month to make 00 a month, it seems a pretty good deal. I would also consider getting rid of an employee and assuming their hours at the gym in order to increase my personal income. I was told that the owners are a husband and wife (owned for 8 years now) and they are selling because the husband is an executive working 60-70 hours a week while going to school at night and that the wife is a stay at home mom and that they do not have the time to manage the gym, although it has pretty much run itself they say.
Sorry to be so lengthy, but that is all of the information I have. I would love to hear what all of your thoughts are on this purchase and how much you really think I’d make here. Of course, if it ends up requiring 50 hours a week to make K a month, I’ll turn it down. I cannot see very many other opportunities though within my price range of -40K. I currently pay 0 a year for my own gym membership elsewhere so that would be a plus of this purchase as well.
Thank you all!
Mail this post
Explain to me “Trickle down economy” concept (read the whole question first).?
So, trickle-down economy is being promoted as some sort of an economic panacea. Give tax breaks to high income earners and they’ll create jobs the thinking goes… I do not see this effect at all.
I run a small business currently with 38 employees. First of all, every penny I pay in salary and benefits are direct business costs paid pretax. Strictly speaking, my personal or business taxes have no effect on my ability to pay the employees no matter what the rate is. It simply does not come into account until I get to the bottom line.
Now, would higher taxes on the net income cause me to lay off people? This could be rephrased like this: would I choose not to make profit if I get to keep only 50 cents instead of 55 cents. The only way I could see that happening is if I was some sort of a nutcase anti-tax activist willing to suffer for the cause. Business activity is driven by pretax profits in general.
Well, would the higher tax force me not to buy new equipment required for expansion? After all, I’d probably end up with less capital to spend due to taxes. However, almost all capital spending is eventually tax deductible. I may have to go through depreciation and other tricks, but, still, I get to deduct most of the spending eventually. Besides, most equipment is leased or financed in the first place, so it’s paid pretax anyway.
Would the higher tax cause me to spend less personally? No. I spend about 10% of my income. More money will not cause me to spend more. Less money would have no effect unless it cuts into the 10% I need for my living expenses. I know literally hundreds of people who are in the same situation as I am. The rest of the money is invested.
Would I invest less outside of my business? Yes. But, a certain portion of my investments is tax-sheltered, so it does not matter what the tax is. As for the rest, for the last 10 years it went straight overseas. US did not benefit from a single investment penny from me. China and other emerging economies did. Why? The returns are higher there.
What would cause me to hire more people? Here’s one thing: if my customers, who are mostly middle class and below, have more money to spend. If each customer spent 5% more, I’d be able to double the number of my employees and double my profits. And, I’d be happy to pay more tax on those profits.
Now, I am not even touching issues like the national debt and the obvious failure if this policy over the last 8 years. Pretend that these issues don’t exist. I just want to understand the thinking behind it.
So, please provide a solid logical explanation of how lowering taxes on businesses and 0k + earners leads to more jobs (jobs in China don’t count). Provide facts, academic research, anything that supports this idea without partisan BS. The most logical explanation gets 10 points.
Mail this post