e-YWM Alert #20- Corporation and Partnership Tax Planning Moves

While there is a great deal of time spent on making the appropriate individual tax planning moves, we felt it would be helpful to include some tips and ideas on moves that can be made related to your ownership in Corporations, S-Corporations or Partnerships. The actions of these entities can all have a direct impact on your 2011 tax liability.   Accrual basis corporation can take 2011 deduction for some bonuses not paid until 2012. An accrual basis corporation can take a deduction for its current tax year for a bonus not actually paid to its employee until the following tax year if (1) the employee doesn't own more than 50% in value of the corporation's stock (however, see below for a S-Corporation), (2) the bonus is properly accrued on its books before the end of the current tax year, and (3) the bonus is actually paid within the first 2 1/2 months of the following tax year (for a calendar year taxpayer, within the first 2 1/2 months of 2012). For employees on the cash basis (for income that was deferred before it was earned), the bonus won't be taxable income until the following year. The 2011 deduction won't be allowed, however, if the bonus is paid by a personal service corporation to an employee-owner, or by an S corporation to any employee-shareholder, or by a C corporation to a direct or indirect majority owner.   Taking S corporation losses. A shareholder can deduct his pro-rata share of S corporation losses only to the extent of the total of his basis in (a) the S corporation stock, and (b) debt owed him by the S corporation. This determination is made as of the end of the S corporation tax year in which the loss occurs. Any loss or deduction that can't be used on account of this limitation can be carried forward indefinitely. If a shareholder wants to claim a 2011 S corporation loss on his own 2011 return, but the loss exceeds the basis for his S corporation stock and debt, he can still claim the loss in full by lending the S corporation more money or by making a capital contribution by the end of the S corporation's tax year (in the case of a calendar year corporation, by Dec. 31, 2011).   Handling partnership losses. A partner's share of partnership losses is deductible only to the extent of his partnership basis as of the end of the partnership year in which the loss occurs. The amount of this basis can be increased by a capital contribution, or in some cases by the partnership itself borrowing money or by the partner's taking on a larger share of the partnership's liabilities before the end of the partnership's tax year.   If a partner anticipates a loss this year in excess of his partnership basis, he can choose to take the loss this year by increasing his basis by the end of the partnership tax year (in the case of a calendar year partnership, by Dec. 31, 2011). On the other hand, if he does not have sufficient other income to make use of the loss this year, he can carry it to 2012.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020 or reply directly to this email.  Additional resources are always available at our website, www.ywmcpa.com.