So used to puting money in, how to take it out;;;;;

[texxan1]

So hear is the deal guys,

I have an opportunity to buy an existing business.   What im curious about is how the best way to do it is. Its a good investment that will give cash flow of about 100k a year into my pocket... This is by no means a sure deal yet, but i want to be prepared at a moments notice... So my plan was to take it out of my Vanguard, all in VTSAX... i have about 900k and want to take out 200k for this deal....

I havent ever taken out of vanguard, just put in.. So im not sure the best way to do this.. What i really want to do is take it out right now while the market is up and just put it in my settlement account and leave it there till i know wether this deal is going to go through or not.  I am unsure of any implications on taxes and such... So looking for a little advice here.

I will try to not use the money, instead scrape up the cash since this business will give me great cash flow.. I just dont know the exact selling price yet as this is something i just found out about the other day.

So , take it out and set in my settlement account
once it goes through, then worry about how this would be taxed etc.

Thanks for any insight

Also, taking 200k out 3 weeks before dividends for the quarter doesnt seem bright either, but what if the market drops again... want to take it out on the hgh side.. So thinking FIFO is the right way to go

HELP lol

Tex

[marty998]

The value of the dividends is incorporated into the unit price. It’s not “free money” if you were to wait three weeks.

If you sell now you might get a preferential tax treatment because capital is generally taxed lighter than dividends.

Can’t comment on the best way to fund your business deal though.

[habanero]

You can also do the math on buying a put option on the S&P 500 for the  ~200k you would be looking to cash out to fund the deal. This is however more difficult if the timing of the potential deal is uncertain.

[travel2020]

Why not finance it? SBA has attractive finance terms and is even paying the first 6 months of principal, interest etc on new loans if the deal closes before sept 2020. It’s a bit more paperwork for sure & cost as well to go this route but helps to have independent eyes on the business and a proper valuation to validate a big investment. With your stache it should be fairly straightforward to get a loan.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief

[Stachless]

Hey Tex,

Congrats on your new endeavor!

One thing to do is select the lots you sell in Vanguard and sell the ones with your highest cost basis to minimize the tax it.  This is probably the exact opposite of FIFO.  Here's the link that explains it:

https://investor.vanguard.com/taxes/cost-basis/specific-identification

Best of luck!

[texxan1]

thanks guys,

ill check into it all....

as for the SBA, they can KMA lol... tried that with a business before and it was a nightmare.... might work for some, but didnt work for others...

as for this business, i am already in the same business and just adding more locations.. So i know the value and have exact numbers on how much the business costs and produce.. its a win win for me if it all goes through.... at my age and firing this year, i need the cash flow lol

Thanks again

Tex

[BicycleB]

@texxan1, when you sell your VTSAX, you'll incur capital gains on the portion of the sale that represents a price gain since the time of purchase. I think the details of how much that is and whether you can use FIFO depend on whether you bought the shares using the average cost method (the normal default) or the specific identification method, as well as when you bought.

If you bought the regular way, Vanguard will calculate the average cost you paid for the shares that you sold, and you'll owe tax on the amount that the price increased (the gain).

https://investor.vanguard.com/taxes/cost-basis/average-cost
https://investor.vanguard.com/taxes/cost-basis/specific-identification

If the shares were bought more than a year ago, the capital gains tax rate will apply; if less than a year, the IRS will classify the gains as short term, therefore you would pay your ordinary income tax rate, which is higher.

PS. When I sell, Vanguard records the details and produces a statement at tax time detailing all this, except that of course they can't calculate my actual tax - that depends on information they don't have, like my overall income for the year and how I do my tax return. They provide all the info I need to report the transaction, though. Where my cash from the sale goes - settlement account, my bank account, etc - depends on what settings I established in my Vanguard account.

[Michael in ABQ]

Another option could be a non-SBA loan using those investments as collateral. That way you're not incurring those taxes from selling - though there will obviously be costs associated with the loan.

[frugaldrummer]

Just curious - without asking you to be too specific - what kind of business can you buy for $200k that would generate $100k/year income????

[MustacheAndaHalf]

At the risk of pushing this too far into taxes... Vanguard offers a "HIFO" approach to shares sold.  The highest cost is sold first, resulting in the lowest taxes.  If you don't want to think about it, or don't have much of a mix of long-term (1yr+) and short-term, it could simplify it.

It's significant that this is your existing business, and the 200k is for new locations.  If this business does better than average in current conditions (per your own knowledge), maybe it's better than a market investment.

Note you are increasing your risk.  Your income is heavily dependent on what you already do, and you're taking investments spread over the whole market, and focusing them in a similar business to yours.  If that business suffers problems, you could lose your job and that investment at the same time.  It's important to look at that risk, and make sure you're comfortable with it.

Hope it works out well, either way.