It doesn’t matter if you sell the business or not for accelerated depreciation to bite you in the ass.
Say you spend $1M on equipment with a life of 3 years and depreciate it all this year. Your profit without depreciation was 1M so you end up with a $0 tax bill. Next year you make another million in profit but have no depreciation - now you have a million dollars you owe taxes on, rather than the 2/3M you would have otherwise. Accelerated depreciation is just kicking the tax can down the road. If the business is going in the toilet and you expect losses in the future then by all means - take the depreciation now. If you think that you are going to make more profit in the future, accelerated depreciation isn’t a great plan. Selling the business is just a form of making a lot of profit in one year. Mark > On Aug 22, 2020, at 4:36 PM, Tushar Patel <tpa...@ecpi.com> wrote: > > I am very curious on the subject of depreciation recapture. So, were you > depreciating CPE? > > Even when you sold the company as $x /customer? > > What happens on the fully depreciated CPE that is in still service? Is the > full amount is captured? > > What would have happened if you had expensed those CPE? > > The reason I am asking this is because accountant always says depreciate so > you can look good to the bankers because you now have a large assets to show > on the books, but it sounds to me if you ever plan to sell it can come and > bite you with a large tax bill. > > > Tushar > > >> On Aug 22, 2020, at 1:30 PM, ch...@wbmfg.com wrote: >> >> >> They assume if you ever took depreciation for anything, it was used as an >> offset for income tax you would have paid. They want that back. I presume >> stuff you junked does not count. >> >> From: Ken Hohhof <> >> Sent: Saturday, August 22, 2020 12:04 PM >> To: 'AnimalFarm Microwave Users Group' <> >> Subject: Re: [AFMUG] Buying and selling ISP’s >> >> Any WISP that has been around for 10+ years has probably expensed or >> depreciated several times as much equipment as is currently active in their >> network. >> >> Do you have to identify which expensed or depreciated equipment is still in >> use and which went in the dumpster years ago? And how do they determine >> what the sale price is for the purpose of seeing if it exceeds the >> depreciated cost? Do they assume the entire sale price of the business was >> to acquire equipment? >> >> Seems like you would be taxed twice, first for capital gains, then for the >> expenses you used to offset revenue for tax purposes. >> >> I know most buyers prefer an asset sale to a stock sale, in case there are >> ghosts in the closets. But would a stock sale avoid this problem? Does it >> matter C Corp, S Corp or LLC? >> >> >> From: AF <af-boun...@af.afmug.com> On Behalf Of ch...@wbmfg.com >> Sent: Saturday, August 22, 2020 10:51 AM >> To: 'AnimalFarm Microwave Users Group' <af@af.afmug.com> >> Subject: Re: [AFMUG] Buying and selling ISP’s >> >> One concept that was new to me in my sale was depreciation recapture. If >> you fully expense or 179 expense or if your equipment is old enough to have >> fully depreciated, all the depreciation expense comes back to bite you in >> the ass. You will be taxed on it. >> >> From: Ken Hohhof >> Sent: Saturday, August 22, 2020 9:39 AM >> To: 'AnimalFarm Microwave Users Group' >> Subject: Re: [AFMUG] Buying and selling ISP’s >> >> That is very dependent on whether the business is being run as “milking the >> cash cow” or “reinvesting to grow the business”. Especially since section >> 179 allows a lot of capital purchases to be expensed in the first year. >> >> I suspect many WISP owners prefer to add staff and equipment and towers and >> customers, rather than declare profits and pay taxes. That doesn’t mean >> their businesses are worth less to a buyer. Back when I worked for >> corporate America, I remember around 1990 working for a public high tech >> company and at stockholder meetings the CEO would be asked why the company >> at every earnings statement would just break even or a little more. He >> would answer they were in business to grow, not to pay taxes. >> >> I am sometimes puzzled by competitors who seem to have crappy service, are >> hated by their customers, and have high churn. Then I realize they are >> milking the cash cow, spending as little as possible, and probably making as >> much or more profit as I am. In the case of big, crappy companies, they >> probably don’t sweat the churn because there are millions more suckers out >> there, you just need advertising to rope some of them in to replace the >> cancellations. Like when asked about Frontier, I describe them as the slum >> landlord of phone companies. >> >> >> From: AF <af-boun...@af.afmug.com <>> On Behalf Of Chuck McCown >> Sent: Saturday, August 22, 2020 10:02 AM >> To: AnimalFarm Microwave Users Group <af@af.afmug.com <>> >> Subject: Re: [AFMUG] Buying and selling ISP’s >> >> Whatever 5x your earnings are. Not sales or revenue or gross profit but >> bottom line earnings on your income statement/ pl. Your taxable income. >> >> Sent from my iPhone >> >> >> On Aug 22, 2020, at 8:16 AM, Mike Hammett <af...@ics-il.net <>> wrote: >> >> >> What does the revenue multiplier end up being, though? >> >> 5x EBIDTA / revenue gets you what, in purchases that have been made? >> >> >> >> ----- >> Mike Hammett >> Intelligent Computing Solutions <http://www.ics-il.com/> >> <https://www.facebook.com/ICSIL> >> <https://plus.google.com/+IntelligentComputingSolutionsDeKalb> >> <https://www.linkedin.com/company/intelligent-computing-solutions> >> <https://twitter.com/ICSIL> >> Midwest Internet Exchange <http://www.midwest-ix.com/> >> <https://www.facebook.com/mdwestix> >> <https://www.linkedin.com/company/midwest-internet-exchange> >> <https://twitter.com/mdwestix> >> The Brothers WISP <http://www.thebrotherswisp.com/> >> <https://www.facebook.com/thebrotherswisp> >> >> >> <https://www.youtube.com/channel/UCXSdfxQv7SpoRQYNyLwntZg> >> From: "Chuck McCown" <ch...@wbmfg.com <>> >> To: "AnimalFarm Microwave Users Group" <af@af.afmug.com <>> >> Sent: Friday, August 21, 2020 8:20:47 PM >> Subject: Re: [AFMUG] Buying and selling ISP’s >> >> 5 x ebidta >> Revenue multiples are of no value. >> >> Sent from my iPhone >> >> On Aug 21, 2020, at 5:30 PM, cjwstudios <cjwstud...@gmail.com <>> wrote: >> >> >> 1x annual revenue and hope the customers stay on >> >> On Fri, Aug 21, 2020 at 5:43 PM Matt Hoppes >> <mattli...@rivervalleyinternet.net <>> wrote: >> This is the issue I’ve always had when I’ve looked at buying an ISP. It >> always seems like a lot more money I would have to put out to buy then I >> could just build and take the customers if something is wrong with the >> current network. >> >> >> >> > On Aug 21, 2020, at 12:43 PM, Seth Mattinen <se...@rollernet.us <>> wrote: >> >> > >> >> > On 8/20/20 8:13 PM, Steve Jones wrote: >> >> >> I think you either buy or sell, isp isnt really a flip thing >> >> > >> >> > >> >> > There is/was someone in my part of the country buying up ISPs and trying >> > to package them all together as a flip. My ISP customers tell me it's far >> > easier to get the flipper's customers to cancel and switch than buy their >> > company. >> >> > >> >> > -- >> >> > AF mailing list >> >> > AF@af.afmug.com <> >> >> > http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> > <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> >> >> >> -- >> >> AF mailing list >> >> AF@af.afmug.com <> >> >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> -- >> AF mailing list >> AF@af.afmug.com <> >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> >> -- >> AF mailing list >> AF@af.afmug.com <> >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> >> -- >> AF mailing list >> AF@af.afmug.com <> >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> -- >> AF mailing list >> AF@af.afmug.com <> >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> <http://af.afmug.com/mailman/listinfo/af_af.afmug.com> >> >> -- >> AF mailing list >> AF@af.afmug.com >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com >> -- >> AF mailing list >> AF@af.afmug.com >> http://af.afmug.com/mailman/listinfo/af_af.afmug.com > -- > AF mailing list > AF@af.afmug.com > http://af.afmug.com/mailman/listinfo/af_af.afmug.com
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