Can we do this?

Thanks for stopping by my blog! Here is some feedback:

Can you declare a dividend when you profit? Yes, of course, but the bigger issue is outlined in this 3-part post:

http://www.jeffnabers.com/2009/10/15/the-end-of-small-business-financing-with-ira-and-401k-funds-part-1/

http://www.jeffnabers.com/2009/10/19/the-end-of-small-business-financing-with-ira-and-401k-funds-part-2/

http://www.jeffnabers.com/2009/10/21/the-end-of-small-business-financing-with-ira-and-401k-funds-part-3/

Can I change my C-Corp to a Sub S?
No, Sub S corps cannot have a retirement account (or for the most part, anything other than a natural person) as a shareholder.

I hope this helps.

In the end, the most important thing is that you are putting your money and energy into activities that have the least risk and most reward. I strongly recommend you stay away from complex strategies and structures that could distract you from doing good deals in the first place

– Jeff

I rolled over 20% of my retirement 401k via QES and started a C-Corp that breeds racehorses. This is a high risk biz, but by using pre-tax dollars I reduce my risk, i.e., the IRS is my partner. And I use pre-tax dollars to travel to KY and FL horse sales and to farms in KY and FL to check on progress of my horses.

I don’t have any employees and I don’t draw a salary, although I document 1200-1500 annual hours on by business. When I show a profit, can I declare a dividend (I’m the only shareholder) and pay the div tax rate?

Can I change my C-Corp to a Subchapter S?

Thanks in advance for your thoughts!

Fantastic question.

I think business ownership is one of the best things a person can do.

I see two sides to your question

** Side 1 **

Q: Is buying a business a good investment?
A: It depends (of course!) on the business and the details of the scenario. Note that not all good business models will be able to survive the current and future onslaught of government intervention in the marketplace in the U.S.

** Side 2 **

Q: When I buy a business, should I use my retirement funds?
A: It depends. But more often then not, I think “no.” First, direct ownership of a pass through entity will create UBIT (see this post). Second, I’m a fan of raising money from investors.

Why raise money from investors?

1) It forces you to clearly communicate why your business plan will be successful, which is something you might not do to yourself if you did the deal alone.

2) You get feedback from others about your business plan. If any others participate, you can draw on their expertise. And when you do draw on their expertise, they want to give it because they have a vested interest.

3) You reduce your financial risk.

4) You share your potential reward with others.