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Old 02-26-2009, 02:05 PM
 
1,257 posts, read 3,931,053 times
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Okay. We opened our business in 2008 and borrowed a lot of money to start our business. We didn't take home much money and no retirement contribution. Without knowing the tax code, our focus is to return the loan as much as possible. Now we are in the shock of our life. We owe taxes on the money we paid back to the bank. We don't know that the amount of principal we paid back to the bank is considered our income. It is taxed at 33%. We paid back over $100K. Now we owe IRS over $30K. I am very confused. Should I refinance our loan to an interest only loan? The tax code apparently didn't support the idea to pay back the principal. We apparently didnít plan well. With the economy becomes worse by the day, now we canít even pay our employees this month because of surprising taxes. Well it is not going to kill us. But we decide to contribute to our retirement plan and pay ourselves as much as possible this year, learned from all the bank executives. Bank fee and interest are tax deductible so who cares to pay back the principal. Any input? Or our accountant told us the wrong thing?
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Old 02-26-2009, 02:49 PM
 
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You need to find yourself a reputable CPA with small business expertise; the best experiences I've had are with ones not affiliated with large financial firms - these fellow CPA entrepreneurs can help you sort this out. Then, absolutely continue your relationship with this reputable CPA going forward. Please note: I mean no offense to the accountant you already went to, but I would definitely seek out someone willing to do more than just help you file your taxes... you need someone who also can advise you more regularly so that you can not just over this mishap but also so that you can grow your business.
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Old 02-26-2009, 03:30 PM
 
Location: Apple Valley Calif
7,475 posts, read 19,448,454 times
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I second mbuszu, find a good CPA. The money you paid back on the loan should be considered operation expenses, not profit. You write that kind of thing off, not pay taxes on it...
Pay the money, probably a couple of hundred dollars, and get a good CPA, they are worth their weight in gold...!
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Old 02-26-2009, 04:05 PM
 
Location: Somewhere in northern Alabama
16,718 posts, read 50,837,263 times
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Third recommendation for a CPA. IMO, you should have set up a corporation, and your accountant doesn't know tax codes.
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Old 02-26-2009, 04:46 PM
 
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Quote:
Originally Posted by Donn2390 View Post
I second mbuszu, find a good CPA. The money you paid back on the loan should be considered operation expenses, not profit. You write that kind of thing off, not pay taxes on it...
Pay the money, probably a couple of hundred dollars, and get a good CPA, they are worth their weight in gold...!
Thank you all. The CPA we have is considered the best in our area. We paid the over $3000 for the yearly tax preparation. We are incoporated (s corp). The income ( we actually don't have) from the S corp is treated as personal income.
Just like mbuszu said, our CPA should have told us what is taxable and what is not taxable from beginning. I don't know what to do with the business loan now. Does anyone agree with our CPA's conclusion?
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Old 02-26-2009, 04:52 PM
 
10,848 posts, read 40,797,371 times
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It sounds like your accountant is not very small business "savvy", regardless of his "best in the area" reputation.

There's no way a competent accountant would have allowed you to make such a large payment back on your loan without explaining the tax consequences to your cash flow and upcoming liability.

Best now to find an accountant who is experienced with small businesses of your size and seek his advice on how to proceed.
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Old 02-26-2009, 05:05 PM
 
Location: Baltimore
1,802 posts, read 7,022,608 times
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Quote:
Originally Posted by LingLing View Post
Thank you all. The CPA we have is considered the best in our area. We paid the over $3000 for the yearly tax preparation. We are incoporated (s corp). The income ( we actually don't have) from the S corp is treated as personal income.
Just like mbuszu said, our CPA should have told us what is taxable and what is not taxable from beginning. I don't know what to do with the business loan now. Does anyone agree with our CPA's conclusion?
You did have the income; you just elected to use it to prepay your loan. But it is still income. The interest on the business loan is deductible.Your start-up costs should have been treated as a capital expense, and depreciated over time, so are not fully deductible within the same year.

You definitely need to talk to your CPA, or another one if you don't trust the one you have. Sounds to me like you need to do some tax planning.
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Old 02-26-2009, 05:06 PM
 
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Quote:
Originally Posted by sunsprit View Post
It sounds like your accountant is not very small business "savvy", regardless of his "best in the area" reputation.

Best now to find an accountant who is experienced with small businesses of your size and seek his advice on how to proceed.
Thanks. I can't blame him. We actually hired a CPA, paid him $600 per month for everything and he screwed up our payroll taxes and didn't give us any advice. We fired him and hired the new one last October. I guess the new one didn't know our account enough to let us know the problem. I just checked with our new accountant again. Yes, we need to pay the tax on the principal of the loan since we didn't pay the tax when we got the loan (I don't know the logic about it). Well, we just paid tuition. I just stopped by Suntrust and asked for a loan to cover the taxes. Suntrust loves us since we pay everything so fast (didn't tell us about the taxes either). The fee for applying that loan is tax deductible (the officer told me very happily). I just feel something is not right and have to vent and no appetite for dinner (business dinner is tax deductible...).
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Old 02-26-2009, 05:07 PM
 
1,257 posts, read 3,931,053 times
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Quote:
Originally Posted by janetvj View Post
You did have the income; you just elected to use it to prepay your loan. But it is still income. The interest on the business loan is deductible.Your start-up costs should have been treated as a capital expense, and depreciated over time, so are not fully deductible within the same year.

You definitely need to talk to your CPA, or another one if you don't trust the one you have. Sounds to me like you need to do some tax planning.
You are right. I have made my appointment.
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Old 03-01-2009, 07:38 PM
 
Location: Boca Raton, FL
4,820 posts, read 8,264,596 times
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Smile Info

I just sent you a DM. My husband is a CPA and may be able to help you
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