Nov 13 2018 Financial Meeting

In the morning, Bobbie felt every second of her 58 years. She had a mild headache and was already little tired of staying in the impersonal hotel suite. She sighed as she looked beside her at the empty space in the bed. She was a little lonely but got ready for her day and hurried over to the bank to deposit her big check. She felt huge relief walking out of the bank. She picked up some pastries and ventured back to her empty room and prepared for her financial meeting.

Bobbie brought all her information in a big accordion folder and she pulled a power bar out of her bag and put it in the centre of the table so Trixie, Derek and Marshal could plug in. She also set up her laptop and a few pads of paper and pens when the phone buzzed, so she ran down to the lobby to greet them. Bobbie knew Marshal from college and although they hadn’t been close friends, she trusted him more than a stranger. She never had an accountant before. Derek was their lawyer for a long time and had been a good friend to Alex.

When they got to the room and introduced themselves, Bobby began, “So Marshal, Alex and I purchased a motel and although he passed away, I’m still planning to sell our family home to pay the business loan.”

Marshal poked around her folder, “You keep good records.”

Derek noted, “Alex invested quite a few assets outside his company and you inherited those free and clear.” After some deliberation it was decided that she should incorporate the motel business and when the family home was sold she would invest the profit and continue to make mortgage payments on the business.

Marshal said, “It’s human nature to pay off debts like mortgage right away but if we build on your investment portfolio and apply capital gains from your sizable investments to the business costs, combined with low mortgage rates, it would be a tax advantage that would benefit you more than paying off the debt completely. Maybe you can even loan yourself the money and pay yourself the interest.”

At the end of the meeting Trixie had moved all her money into investments as well as her own severance pay that was just sitting in her bank account. Bobbie was starting to realize how little she knew about investing or tax laws.

“So Trixie what I really want to know is how to make my personal budget.”

“Oh Sweetie, we’re beyond that now. Your plan is to live on site, with the business. Almost everything you do or buy will be for the business. I’d say you need a personal bank account along with a personal credit card. But mostly you’ll be keeping records on what you are spending on the business.”

“So right now my pension is auto deposited into my bank account and I’ll have to get Alex’s name taken off. So many things automatically go in and out of that household account, I maybe should just close it. I have a list of the power company and all that stuff that I have to cancel and I’ll get my pension sent to the new account. The interest payments from Alex’s investments used to come in quarterly. I guess that will go somewhere else now…”

Marshal smiled, “All that interest income that you and Alex so religiously paid capital gains on will now pay for your motel renovation. So have you already started work on the motel? I need to get your business up and running, with Derek and Trixie’s help, so we can make sure you are using the right money for the right things.”

They all sat back and ate pastry and drank coffee.

Bobbie smiled and said, “Well we bought it last spring and Alex decided to surprise me with a new swimming pool and landscaping as the first thing we did.”

“Oh Barb told me about that, I never got to see it. Do you mind if I ask how you guys paid for it?”

Bobbie looked down at her hands and said “he sold a necklace.”

“What,” asked Marshal, “you sold a necklace?”

“Yes, in my safety deposit box I have jewellery from Alex’s parents and we had 3 emerald necklaces and the most ornate was my least favourite. So we sold it for about $60,000 and that about covered it.”

Marshal gasped and said, “When did you inherit the necklace? That will have capital gains implications.”

“I won’t sell any more jewellery Marshal. My mother in-law made me promise to keep it in the family so I’ve been feeling bad about it anyway. It was Alex’s decision!”, she finished defensively.

“Well hopefully it’s not too late to claim the necklace capital gains as a capital cost against building the pool for the business. Otherwise 30K is applied to your personal income and you’ll pay a lot of tax.”

“Well exactly how much tax would I pay? I can’t believe Alex would have done this if it would hurt us financially.”

Marshal sighed, “OK if the piece he sold was worth 60K, you would report that as capital gains. To calculate that tax, since I assume you have no receipt, the value defaults to 1000 so when you sold it you have 59000 profit. The capital gains is 50% of 59000 or 29,500 dollars. At your current rate of taxation, you’d pay about 15000 dollars in taxes. Maybe Alex felt that was a reasonable tax hit but usually a business would fund a build with less direct taxation.”

“We hadn’t fully realized we were a business yet, I guess. If we sold the piece for 60K we’d have 45,250 profit and maybe that’s all he needed.”

That summer on Trixie’s first visit to the pool at the motel she brought a sign that read ‘Emerald Pool’.