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Accounting question...
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I probably need to take this up with my accountant but here goes my hypothetical question.

Let's say I purchase a company for $1 million. I pay cash. That year it makes a $1 million dollar profit. At the very end of the year a freak occurance totally kills the ability of the company to make any money ever again. Revenues goes to zero, and profits go to zero. I have to shut down the company. Assuming this is my only financial activity what do my federal taxes look like? Is the whole think a giant wash with a $1M cash purchase, $1M in profit, and a $1M write off? By wash I mean no taxes, and I've got my $1M back.

What would have happened to my taxes (or what would my options be) if the freak occurance occured in the first day of the next fiscal year? This scenario would still have the $1M cash purchase, the $1M in profit, and no Rev or profit in year 2, but the write off would officially occur in fiscal year #2.
Last edited by: SH: Nov 10, 17 10:24
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Re: Accounting question... [SH] [ In reply to ]
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Your mixing up income and capital.

When you purchase the Company, you have to allocate the cost of purchase to assets or Goodwill. You paid $1,000,000 but at that point there are no tax consequences since you haven't earned any income.

In the year you make $1,000,000 you would pay tax on that income.

In the second year, since there was no income the only business losses would be from things like amortization of some of the assets you bought. In that case, you could carry back the losses and apply those to the income you earned in the prior year and get a refund.

For the most part, the closing of the business would generate capital losses which you can only apply against capital gains and not against the business losses.

It's not a great plan...
Last edited by: Sanuk: Nov 10, 17 11:28
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