FDM-April2019

Page 34

fun·ding /‘fəndiNG/noun

1. The action or practice of providing money for a particular purpose. 2. Sound advice from Tim Seiber, CFE

Consider financing via your 401(k) even if your CPA advises against it

M

ost CPAs will discourage you from tapping your 401(k) to start or grow your franchise business. They usually give this advice because they’re either unfamiliar with the Rollover as Business Start-Ups (ROBS) program or are uncomfortable with the tax structure of a C corporation. Generally, the benefits that franchisees receive from utilizing the ROBS program far outweigh any concerns. Since the IRS created ROBS through the ERISA Act of 1974, the program has been a great way for thousands of entrepreneurs to open their businesses debtfree. So before you let your CPA persuade you that it’s a poor option, you should understand the specifics behind their negative view. DEFINING A C CORPORATION Under the federal tax code, business entities are categorized as either pass-through or non-passthrough business entities, with the main difference being that pass-through entities are not required to pay corporate taxes. These include sole proprietorships, partnerships, and S corporations. C corporations are non-pass-through entities that are completely separate taxpayers from their owners and are subject to corporate taxes. 34

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This is often where pushback from a franchisee’s CPA comes in. Because income earned by the C corporation is taxed at the corporate level and any distributions made to stockholders (i.e., wages) are taxed at the stockholder’s individual tax bracket, the potential for double taxation scares off tax advisers who are unfamiliar with the other benefits of the ROBS program. But this should not be the only consideration when looking at ROBS as a funding option, because while double taxation might occur, the C corporation structure offers advantages for small business owners versus pass-through entities. ADVANTAGES OF A C CORPORATION Although pass-through businesses are not subject to federal corporate income taxes, they can still face a substantial tax burden from federal, state, and local taxes. Last year’s new tax reform significantly reduced the tax disadvantage of utilizing a C corporation structure. The corporate tax rate decreased to 21 percent, which is lower than the tax rate for pass-through income, and because most individual tax brackets also decreased, distributions are taxed at a lower rate as well.


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Low-risk, high reward

1min
page 56

Tune in to a great opportunity

1min
page 52

A franchise to feel good about

1min
page 54

Cover Story

2min
pages 48-49

Conserva Irrigation

1min
page 57

Renew Crew

1min
page 50

Take comfort

1min
page 82

Interview with David Banfield

1min
pages 70-71

Getting Real About Resales

3min
pages 68-69

Wrenching Decision

3min
pages 64-67

Growth Spurt

2min
pages 60-61

Handy and Hands-on

2min
pages 58-59

Hitting a Home Run

9min
pages 46-50, 52, 54, 56-57

Move over, guys

2min
pages 44-45

Why buy? Weigh everything in the franchise package

2min
pages 40-41

An innovator who runs her business with passion

1min
pages 36-37

Consider financing via your 401(k) even if your CPA advises against it

2min
pages 34-35

Special Legal Considerations for Home Services Franchisees

2min
pages 30-31

Franchisee of the Month

2min
pages 28-29

Here they Grow

1min
page 26

Flood Zone

1min
page 25

Cave Man

1min
page 22

SERVING THE INDUSTRY

1min
page 20

Rude Awakening

1min
page 20

Beyond the bottom line

1min
page 17
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