Tax Planning Before the Year End

Tax Planning Before the Year End

What do a Sub S Corporation, a Partner-ship, a LLC and an individual all have in common? They all use the calendar year as their fiscal year. December is coming around again, and with it are your end of the year taxes. Is it going to be a good year for your business? Are you looking into the eye of the IRS tiger with the sinking feeling that you are going to be a very satisfying meal? If this is your situation, estimate your taxes now. Try to determine approximately what your taxable income will be. Calculate your taxes based upon these estimates. Then, consider what alternatives are available to reduce this tax burden. A C corporation can have a non-calendar fiscal year. When the corporation is formed it can designate the closing month of its fiscal year. This information is included on the SS-4 form when the corporation requests its EIN (Employer Identification Number) from the IRS.

How does this help you? Assume that your business is going to have substantial taxable income due at the end of its fiscal year. You form a Nevada corporation and establish its fiscal year to end in a month other than December. Then, utilizing legitimate business procedures, you can expense a substantial portion of the taxable income to the Nevada corporation, thereby lowering the profits of your existing business and, of course, reducing your personal taxes. When utilized properly, the insertion of a Nevada corporation into your cash flow loop will not only substantially reduce your taxes, but will also give you added flexibility in your tax planning.

Points to Ponder: C Corporations can have a non-calendar fiscal year. When the corporation is first organized, you, and not the IRS, determine which month the corporation will pay its taxes. If you own 50% or more of the voting stock of 2 or more corporations, the IRS may declare them to be members of a “controlled group” and require them to file a single consolidated tax return. This requirement will eliminate the benefits described above. Under the IRS “Rules of Attribution”, your family members, including your spouse, children, siblings and parents are counted as one person for purposes of stock ownership. So, dividing the corporate stock among your family will not reduce “your” stock interest and eliminate the “controlled group” problem. Although “Bearer Stock” is permissible in some jurisdictions, it does not, by itself, satisfy questions of ownership. On the contrary, “Bearer Stock” can increase scrutiny of the corporation.