# For those who listen to CPA"s

Discussion in 'Starting a Lawn Care Business' started by KTO Enterprises, Aug 22, 2007.

1. ### KTO EnterprisesLawnSite Bronze Memberfrom Beaufort, South CarolinaMessages: 1,286

There have been threads on here about people who will spend money at the end of the year just to avoid taxes, at the advice of their CPA's. Here is the mathematical proof of why this is not sensible.

Say for instance you end the year with an extra 20,000.
Some would go buy a new truck and save the tax expenses.
I say pay the taxes and keep the cash.

Purchasing something that loses value does not make sense. Say you pay 20,000 for the truck, now you have higher insurance due to the newer vehicle, and higher taxes. The truck will not stay at a value of 20,000. Within a few years it is worth less than half that.

If you take the 20,000 and pay the taxes you will be left with about 12,500. That is 12,500 you will never have to pay taxes on again. EVER.

If you put that 12,500 in a CD at 5%. In a year you will make \$625 in interest.
The taxes on that interest will be around 200 so you now have 12,925 in the bank. You can also roll over extra money from that year.
If for 10 years you roll 10,000 every year into an account earning 5% this is what it would look like.

after year 1 10,000 put into cd@5%.
after year 2 350 in interest after taxes plus another 10,000 total 20,350
after year 3 759 in interest after taxes plus another 10,000 total 31,109
after year 4 1166 in interest after taxes plus another 10,000 total, 42275
after year 5 1585 in interest after taxes plus another 10,000-total, 53,860
after year 6 2109 in interest after taxes plus another 10,000-total, 65,879
after year 7 2470 in interest after taxes plus another 10,000-total, 78,349
after year 8 2938 in interest after taxes plus another 10,000-total, 91,287
after year 9 3423 in interest after taxes plus another 10,000-total,104,710
after year 10, 3926 in interest after taxes plus another 10,000-total,118636

total interest made over the 10 year period, after taxes are paid on the interest is about 18,726
Listening to a CPA will make you cash poor in a heartbeat. They want you spending money because it keeps you coming back and paying for their advice.

This is why i keep my older trucks, that are paid for, and save what is leftover every year rather than look for something to waste it on. It doesnt take long to have a nice cash wad in the bank. And the larger it gets the faster it grows. Within 15 years you could make enough in interest to make a payment on a new truck, and still have the cash wad in the bank.

2. ### Americal VetLawnSite Senior Memberfrom Mid MissouriMessages: 250

I'm all about folks paying their taxes. That's where my check comes from.

3. ### TSGLawnSite Senior Memberfrom N. Woodstock, NHMessages: 444

KTO
Well said
Many on this site mistake needs and wants.
The issue with many is with many young businesses, they need the truck or mower, and buying it in a year with profits makes a lot of business sense .
I also believe that most are not investing the profits,,,,they are living on them.
They then find themselves NEEDING a truck or mower and not having the \$\$\$\$\$to buy it. They then sent a post to this board asking weather they should pay cash
or finance it.

It is really important to establish a relationship with an accountant.
He needs to know you.
If any acct offers advise without a lengthly first appointment,,,,go somewhere else.
Asking your attorney for a referral to an acct is also a good place to start .
Just .02

4. ### KTO EnterprisesLawnSite Bronze Memberfrom Beaufort, South CarolinaMessages: 1,286

TSG, you make the point I didnt about needs and wants. I want a new truck, but I needed another dependable truck, therefore I bought an 97 f350 in january for 9,000. I want a new commercial mower for bagging, but I can keep using the one I have without much expense to keep it going, and it is paid for. Same as my trucks. I think what happens to a lot of people starting out is they have too many wants. I do agree with you on the point about keeping some cash in hand and finance a piece of equipment. If I have 15,000 in hand and I want a new mower that cost 10,000, I can either spend 10,000 and have 5k in hand or make a 2,500 down payment, keep 12,500 and put it in an account earning close to 4 percent interest. That would pay close to 41 dollars per month, That interest can go toward the payment, and you still have cash on hand for those unforseen circumstances.

Now being that I have a stable business, where I am not concerned as much as someone starting up about lean times, I am more likely to save and pay cash for equipment of vehicles.

Same with wants. I only buy If i can afford to pay cash. If I want a boat, I wait until I can pay cash. I like you see so many that fail to distinguish between needs and wants.

I was mainly making the point about the CPA's out there that try to convince people to spend money that they dont need to spend.
My dad had a CPA in the early 80s that tried to pull that with him. Had he listened to his CPA he would have not paid everything off extremely early, because he would have been spending on non essential items.

5. ### nobaggerLawnSite Gold Memberfrom PaMessages: 3,065

I wish I had an extra 20k,lol

6. ### jak2703LawnSite Memberfrom cincinnati, ohioMessages: 14

KT and TSG,

I am the guy who started this back on the 8th of August. To say the least I have been a little more than suprised by the response and attitude torward my post. I happen to believe one hundred percent in being debt free, and I intend to start my business this way. I owe on two things in my life, one is my house (which I am trying to pay off as quickly as possible), the other is a new car that I have been paying off now for about three years (I will never buy a new car again). I am able to accumulate money so quickly that I can pay for things in cash while investing for my future at the same time. It took me a while to get this through my head. Now I love it and won't work any other way.

TSG, as for your post above:
"I also believe that most are not investing the profits,,,,they are living on them.
They then find themselves NEEDING a truck or mower and not having the \$\$\$\$\$to buy it. They then sent a post to this board asking weather they should pay cash
or finance it."

I did not post the thread because I don't invest or save. I did it because I know how big of a problem it is for people today. In my opinion, you guys are right, people don't understand the difference between needs and wants. I hope some of the conversation on my original post will get people to think, we'll see.

My plan is as follows:

I work full time for the military and won't quit that for obvious reasons. I am going to buy everything outright over the winter and begin to advertise in small areas so I can get my feet wet and learn. I have the LLC, insurance, lawyer, and accountant already. I have someone whom I trust very much who will mow for me. He has experience in the industry and is ready to go. Due to my financial situation I am able to fund the business from my military pay check until it gets going. I honestly can't wait. I am very excited about trying to get this going.

I really appreciate hearing your opinions and would appreciate even more any advice that you may be able to give me.

Thanks again,

JAK2703

7. ### jak2703LawnSite Memberfrom cincinnati, ohioMessages: 14

TSG,

Please read my post above, or below, I am not sure where this ends up when I post it.

8. ### jak2703LawnSite Memberfrom cincinnati, ohioMessages: 14

I forgot to mention.

People are so worried about the tax portion of all of this, however, no one makes mention about the huge tax break you get by giving money to charities or other organizations.

For most people if you were to pay off your house and invest your "payment" each month into a good mutual fund you would have more than enough money to give some away at the end of the year and still recieve a huge tax break. Even bigger than the one you would get from still owing on your house.

Giving is an old, but effective way to make things happen financially speaking. Most people are to greedy to do this though.

Thanks for hearing me out.

Later.

10. ### jak2703LawnSite Memberfrom cincinnati, ohioMessages: 14

TSG,

I agree, I am very blessed. I think my plan should work. If it doesn't the worst thing will be that I have very nice lawn equipment to mow my yard.

Like I said before, any advice would be helpful.

Go Army! (I had to, you understand)
JAK