Re: [AlpacaTalk] Re: [alpacapolitics] AOBA subsidiary
Hi Heather,
Sure. Let me give you a total picture example that might help. I'll let
the accountants out there correct me but remember it's fake income and
over-simplified to make it easier to explain.
Before we realized we had to pay taxes on income:
> FRG income: $100.00
> Magazine: $100.00
> Auction: $100.00
Other income: 500.00
> Gross Income: $800.00
> Taxes paid: -0-
> Net income after Taxes: $800.00
>
> AFTER we realized we had to pay taxes on income but taxable income wasn't
separated out:
> FRG income: $100.00
> Magazine: $100.00
> Auction: $100.00
Other income: 500.00
> Gross Income $800.00
> Taxes paid: $266.64 (33.33%--just an example.Don'
amount...probably higher than 33.33%)
> Net income after taxes: $533.36 ($800 income minus taxes of $266.64 i.e.
entire $800.00 is taxable because all income is taxed)
Now, Board sets up "subsidiary" cost center to house the taxable income.
Here's how it works if I understand it correctly:
Taxable Income sources separated out by accountants for tax purposes:
FRG income: $100.00
> Magazine: $100.00
> Auction: $100.00
Taxable Income Gross: $300.00
Taxes paid @33.33% = $100.00
Net taxable income left: $200.00 ($300- $100)
Non-taxable Income kept separate from taxable income by accountants:
Other income: 500.00
Tax paid on non-taxable Income: -0-
Non taxable income left: $500.00 ($500.00 - 0 = $500.00 i.e. no
income lost to taxes!)
Net Income after taxes: $200.00 left from taxable income + Plus non
taxable income of $500.00 = Income of $700.00. By separating out the
taxable from non-taxable, AOBA gets to keep $700 instead of $533.36.
Now imagine the actual huge dollars with real revenue and you are seeing
savings of BIG dollars for the memberships.
So, in this example, by separating out taxable income, AOBA pays $100.00 in
taxes instead of $266.64. In the end we have less money because we have to
pay taxes on the taxable amounts BUT we reduce the tax burden by separating
out the taxable income and only paying taxes on that income.
There is NO more income; actually less. But it's more than we'd have left
if we didn't separate out the taxable income.
It has to be done this way to satisfy the regulations. The same elected
Board oversees the subsidiary, which is like a checkbook which tracks
certain income separately. Perfectly legal but you have to follow the
rules or you simply end up paying taxes on the entire amount again.
We should thank the Board for finding a legal way to reduce the
Association'
Does this help??
Call me at 330-722-4820 if you need me to walk through this with you in
person. Might help. While AOBA pays $100 in taxes that they didn't have
before, they can't afford NOT to do this because we are still ahead with
the $200 taxable income we get to keep in this example. If we don't do
this and all income is taxable and we pay $266.64 in taxes, we are still
ahead but barely ahead.
Libby
Libby Forstner
Magical Farms
Stardust Alpacas
<stardustalpacas@
yahoo.com> To
Sent by: AlpacaTalk@yahoogro
AlpacaTalk@yahoog cc
roups.com
Subject
Re: [AlpacaTalk] Re:
12/29/2007 09:15 [alpacapolitics] AOBA subsidiary
PM
Please respond to
AlpacaTalk@yahoog
roups.com
Hi Libby,
I'm not getting into a tizzy about anything. I would
appreciate it if you could include your FAKE example
of how the taxes are to be paid on the FOR PROFIT
corporation. Maybe that example would help the rest if
us understand the benefits a bit more. Is the ALC
going to pay less taxes than it would if AOBA paid
them?
Thanks,
Stephanie
--- libby@alpacafarm.
>
>
>
>
> Hello Stephanie,
>
> There is no more income. It's just that now we have
> to pay taxes on income
> we didn't use to have to pay taxes on. There's
> actually less income as we
> have to pay taxes now on income we received before
> but didn't pay taxes on.
>
> Example using FAKE income (so don't get into a tizzy
> re: amounts):
>
> Before we realized we had to pay taxes on income:
> FRG income: $100.00
> Magazine: $100.00
> Auction: $100.00
> Gross Income: $300.00
> Taxes paid: -0-
> Net income after Taxes: $300.00
>
> AFTER we realized we had to pay taxes on income:
> FRG income: $100.00
> Magazine: $100.00
> Auction: $100.00
> Gross Income $300.00
> Taxes paid: 100.00
> Net income after taxes: $200.00
>
> So you see, same income but now taxable so we
> actually have less income.
>
> Non profits DO make money! Whoever told you that a
> not for profit can't
> "make" a profit? Revenue and expenses never
> exactly match and I've worked
> for many, many non-profits in my career that made
> money. The key is how
> much you make and in what areas before you have to
> pay taxes. Separating
> out the taxable income from the non-taxable income
> protects you from paying
> taxes on the non-taxable income. It's the right,
> smart thing to do when
> you run a not for profit and it's perfectly
> legal...that why the rules are
> there to allow it. Consult a non-profit attorney if
> you don't believe this
> to prove it to yourself.
>
> Libby
>
> Libby Forstner
> Magical Farms
>
>
>
>
> Stardust Alpacas
>
> <stardustalpacas@
>
> yahoo.com>
> To
> Sent by:
> alpacapolitics@
> AlpacaTalk@yahoog
> alpacatalk@yahoogro
> roups.com
> cc
>
>
>
> Subject
> 12/29/2007 07:01 [AlpacaTalk]
> Re: [alpacapolitics]
> PM AOBA
> subsidiary
>
>
>
>
> Please respond to
>
> AlpacaTalk@yahoog
>
> roups.com
>
>
>
>
>
>
>
>
>
> If there was a reason to make a for profit
> corporation, then there IS surplus money. If AOBA
> chose to donate the money before the end of the year
> (such as to the ARF), then they would avoid paying
> tax
> on that surplus money. Instead, they choose to keep
> it. Non profits are not-for-profit by definition.
> Why
> is there a profit to hold on to? Are they charging
> to
> much to the members?
>
> If this was not an issue before, then obviously they
> now have too much money in the bank to be considered
> a
> non profit, which is why they had to make the
> change.
>
> Seems to me, that AOBA should consider changing
> itself
> into a non-profit cooperative (like AFCNA), where
> the
> surplus money COULD go back to the members since
> apparently the members don't own AOBA. Seems more
> fair
> to the people that gave all that surplus money to
> AOBA
> in the first place.
>
>
> Stephanie
>
> --- Acres of Love <alpacas@acresoflove
>
> > There seems to be some mis-conception that AOBA
> has
> > suddenly, magically
> > begun turning some extraordinary profit, resulting
> > in "surplus funds". No
> > new "for profit" company was started. A corporate
> > entity, Alpaca Livestock
> > Company was formed to encompass three existing
> > enterprises.
> > Magazine, F&RG and the auction at Nationals.
> >
> > There is no new money. Just your friendly local
> IRS
> > wanting income tax on
> > the money generated by Alpacas Mag, F&RG program
> and
> > the auction held at
> > Nationals. So, there is no "surplus funds" to
> "give
> > back" to members.
> > Matter of fact, there is LESS money now, as IRS
> now
> > gets some. The function
> > of the Alpaca Livestock Company is to provide an
> > official accounting point
> > for the portion of activities and transactions
> > within the realm of AOBA
> > which the IRS deems taxable.
> >
> > We are on Dish Network and have seen several
> (AOBA)
> > commercials this month,
> > one as recent as 2-3 days ago. We have not seen an
> > ILA commercial for some
> > time, but we usually see them nearly as often as
> > AOBA spots.
> >
> > Tennessee corporation records are, like many
> states,
> > available on-line.
> > Alpaca Livestock Company is "owned" by the Alpaca
> > Owners and Breeders
> > Association. AOBA members are just that,
> "members",
> > not "owners" of AOBA,
> > thus they do not "own" Alpaca Livestock Company,
> > either. Wholly owned
> > subsidiary companies do not issue stock
> > certificates, as there are no
> > "shares".
> >
> > Income tax liability could be avoided by AOBA by
> > merely stopping publication
> > of Alpacas Magazine, discontinuing the F&RG
> program,
> > cancelling the auctions
> > at Nationals and ceasing TV ad purchases. Since we
> > can't afford the TV
> > spots ourselves, we prefer that AOBA continue the
> > aforementioned activities,
> > even if some portion of the funds involved are
> > subjected to income tax.
> >
> > Jess
> >
> > Jess & Cookie Bowers
> > Acres of Love Alpaca Ranch
> > Acres of Love Alpaca Transport
>
=== message truncated ===
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