A worked example
Buying a business on a seller note
Jesse, 40, single, left a $300k corporate job to buy a $900k-revenue business for $800k, 10% down, the seller carrying $720k at 8% over ten years. The business earns $350k before paying Jesse anything.
“If I pay myself $150k, does this beat the job I left, and what does the note cost me along the way?”
What the projection shows
Tax on business profit is owed whether or not the profit is paid out, so the two plans differ mainly in what funds the household: the year the pre-tax accounts run out, the first year the household comes up short, and the interest and principal split on the seller note in every year.
What else the projection found
Nothing was missing from the inputs. These follow directly from the numbers above, under the assumptions this example uses.
- The business earned $254,904 but only paid out $150,000, so you're taxed on $104,904 you never received. The year's $71,758 tax bill pulls $44,758 out of your personal accounts to cover it.
- The business earned $350,000 but only paid out $225,000, so you're taxed on $125,000 you never received. The year's $110,029 tax bill pulls $58,825 out of your personal accounts to cover it.
The planner opens with this household already filled in. Change the balances, the ages or the assumptions to match your own situation, then run it.
A projection based on stated assumptions. Not financial or tax advice.