WHAT ARE YOUR THOUGHTS ON THE FOLLOWING US FEDERAL INCOME TAX SITUATION
I am doing due diligence on a company that is much larger than others I have looked at so far. The company is very asset light so depreciation would be minimal and amortization has been ignored due to the long write-off period. The acquiring entity will be taxed as an S-corp and I will have 100% equity. The following thought came to mind. Imagine the following scenario:
EBITDA/cash flow: $2,500,000
Enterprise value: $10,000,000
Equity injection: $1,000,000
Bank financing: $4,000,[redacted]year term, 6% APR, $55.5k monthly payment)
Seller carry: $5,000,[redacted]year term, 6% APR, $77.3k)
Net Income (ignoring amortization - EBITDA less interest payments): $1.989mm
EBITDA after debt service: $905.9k
US federal taxes due on Net Income in the first year: $903.4k
Am I missing something here? If I do this deal I will barely be able to afford the taxes. As loan payments shift to have lower interest each month/year the situation only worsens. If I'm thinking about this correctly, how can I make this work? What creative yet legitimate ways are there to decrease my tax liability?
Thanks for any and all help.