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Ad-Vice_Man
09-02-2009, 10:23 AM
One of the biggest problems I see when business owners go to get a loan is their Tax Returns.

Every Financial Institution and the SBA are going to ask for 2-3 Years tax returns. As this is a legal document, signed and attested to as accurate representation of your financial situation.

What I see all the time is business owners who have "optimized" their tax returns to minimze their tax burden. Well unfortunately the net effect of this is attesting to the fact that your company didn't net any profit that year.

Great if you're dodging the tax man, terminal if you're trying to get a loan. It's telling the underwriters that your business can't afford to make the payments on the loan you're asking for.

I'd love to get an accountants take on this.

vangogh
09-02-2009, 11:16 AM
That's interesting. I never really thought how filling out taxes the usual way to save on paying taxes is opposed to getting a loan, but it makes sense. The hard part is that you don't generally know this year that you might want a loan 3 years from now.

cbscreative
09-02-2009, 11:55 AM
How about we just get rid of the IRS and then there won't be a problem.

Americans For Fair Taxation (http://www.fairtax.org)

Steve B
09-03-2009, 06:24 AM
I think Advice Man is talking about tax cheats not people that make legitimate use of the tax code to minimize their taxes.

I don't have any sympathy for cheaters - so I don't really care if they have trouble getting a loan as a result.

Ad-Vice_Man
09-03-2009, 10:37 AM
Yes i meant the cheaters, but not just the overt ones... the ones that play in the gray area of the law as well.

Your lender is going to want to see that you have the cash flow to make the payments on the loan. so if you're expenses are so high (fictional or not) that there's no extra money to make the monthly loan payment. noone is going to lend you the money.

ArcSine
09-03-2009, 11:00 AM
All very good points, but also remember the other side of the coin: There's frequently a disconnect (and sometimes a large one) between "taxable income" as shown on the return, and bona fide cash flow. The degree of disconnect depends largely on the allowable tax accounting methods used in preparing the return.

Just as an example, one construction company I advise on occasion is allowed under the tax code to use a revenue-recognition method on its corporate return which, year over year, produces taxable income that deviates pretty far from the company's actual cash flow.

The trick, of course, is to supplement the tax return with cash flow analyses or schedules, so that the prospective lender gets the whole picture.

When presented with this more complete picture, I've heard more than one banker who "gets it" remark, "I'm glad to see that you're intelligently minimizing your tax liabilities--after all, less tax = more cash flow, and sustainable cash flow is all I care about."

Cheers, all--

huggytree
09-06-2009, 08:15 PM
i keep pushing my accountant for advice on how to hide money or move it somewhere to avoid high taxes....he never gives me anything....he's honest and thats why i stick with him....where are these grey area's?