I'm completing the Cash Flow Projection in my Business Plan. I'm stumped by
the taxes line item. Even Einstein said "This is too difficult for a
mathematician. It takes a philosopher.".
Where I'm lost is what to do with corporate taxes. Do I assume 40% if my
projected net income is > $250K, put in this line and call it a day, or do
corporate taxes have a special place that doesn't fit in financial planning
spreadsheets?
I have little doubt this is covered in the blog somewhere, but I've searched
until I was blue and Googled until I was purple. It's another very late night
working on our business plan, so in an attempt to turn a reasonable
flesh-tone again, I cast this out to all the business guru types that
hopefully frequent this wonderful site.
Best regards,
Chuck
JGabriel | Community Moderator |
12/5/2012 - 4:45 pm
Hi Chuck, for a specific question like this, a good place to start is with one of SBA resource partners: SCORE or Small Business Development Centers. These organizations provide free business counseling and training. To find your nearest SBA resource partner, enter your zip code in our local assistance guide.
loanuniverse | Window Shopper |
12/3/2012 - 11:22 am
You can approach this a lot of different ways. Here is a couple:
1- I would not even bother about corporate taxes. I would assume that the
business has chosen to be taxed as a pass through entity {LLC or Subchapter-S
Corp}, which would be what would probably happen anyway and figure out what
the tax liability would be by looking up the appropriate individual tax
bracket. Assuming you have allocated yourself a reasonable salary, I would
then subtract the expected tax liability as a distribution. Uncle Sam has to
get paid anyway.
2- At $250,000 of net income, the federal tax liability is lower than 40%.
Look up corporate federal tax brackets. I think you would have to pay around
32.3%. Of course this only applies to a regular C Corporation, and I do not
see much of a benefit for choosing that unless the personal tax brackets jump
significantly higher than where they are now.
Not an accountant, and I don’t play one on TV but I have seen more than my
share of financial statements.
JGabriel | Community Moderator | 12/5/2012 - 4:45 pm
loanuniverse | Window Shopper | 12/3/2012 - 11:22 am
1- I would not even bother about corporate taxes. I would assume that the
business has chosen to be taxed as a pass through entity {LLC or Subchapter-S
Corp}, which would be what would probably happen anyway and figure out what
the tax liability would be by looking up the appropriate individual tax
bracket. Assuming you have allocated yourself a reasonable salary, I would
then subtract the expected tax liability as a distribution. Uncle Sam has to
get paid anyway.
2- At $250,000 of net income, the federal tax liability is lower than 40%.
Look up corporate federal tax brackets. I think you would have to pay around
32.3%. Of course this only applies to a regular C Corporation, and I do not
see much of a benefit for choosing that unless the personal tax brackets jump
significantly higher than where they are now.
Not an accountant, and I don’t play one on TV but I have seen more than my
share of financial statements.
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