If your business is incorporated, consider taking money out of the business by way of a stock redemption if you are in the position to do so. They buy-back of the stock may yield long-term capital gain or a dividend, depending on a variety of factors. But either way, you'll be taxed at a maximum rate of 23.8% instead of at the highest marginal rate of 39.6%.
If you own an interest in a partnership or S Corporation consider if you need to increase your "at risk" basis in the entity so you can deduct a loss in the activity you materially participate in. A partner's share of partnership losses is deductible only to the extent of his partnership at risk basis as of the end of the partnership year in which the loss occurs. Similarly, an S corporation shareholder can deduct his pro rata share of an S corporation's losses only to the extent of the total of his at risk basis in (a) his S corporation stock, and (b) debt owed to him by the S corporation. Typically a partner or S owner can increase his/her basis by contributing cash or other property to the entity before the end of this year. The shareholder or partner may also make a loan to the entity to increase his/her basis instead of making a capital contribution.
If you are considering selling business assets for a gain, you may delay payment of tax on the sale if you receive payments over time in installments. Electing the installment sale method will allow you to recognize the gain as the payments are received, rather than recognizing the entire gain in the year of the sale. No deferral is allowed on the portion of the transaction that represents gain on ordinary items, such as inventory and depreciation recapture.
Every year, we release a tax tip sheet for business owners to assist with year-end tax planning. We've shared 3 of the tips above. If you would like to access the rest of the tips (there's 6 more!), including timely information about tax extenders, please click on the button below.
This blog was co-authored by Angelina Milo.
Angelina Milo is a Vice President in Meaden & Moore’s Tax Service Group. With more than 20 years of experience dealing with entrepreneurial businesses, including eight years with a “Big Four” international accounting firm, Angelina has broad technical expertise in many industries, including manufacturing, real estate and professional services.