Year-End Tax-Planning Moves for Businesses

By Mayer Nazarian

In our last post, we discussed advisable year-end tax-planning moves for individuals under current tax laws. Here, we’ll discuss actions businesses may consider before the end of the year to minimize their own tax obligations. This is by no means an exhaustive list, but it should provide some jumping-off points for your conversations with your tax planning professional. 

• Employers must withhold additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take this into account when figuring their estimated tax. And, there could be situations where an employee is required to have more withheld toward year-end to cover the tax.  For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax, since wages from each employer do not exceed $200,000. 

• A business should consider accelerating income from 2015 to 2014 where doing so would prevent the business from moving into a higher bracket next year.  Conversely, it should consider deferring income until 2015 where doing so will prevent the business from moving into a higher bracket this year.

• A corporation should consider deferring income until next year if doing so will preserve the corporation's qualification for the small corporation alternative minimum tax (AMT) exemption for 2014.

• A corporation (other than a "large" corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.

• If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies (the deduction is based upon revenue generated from qualifying activities – typically the manufacture, growth, production, or extraction of tangible property; the production of film, sound recording or software; or the performance of construction, engineering or architectural services –within the United States). If your business qualifies, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year. 

• To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.

• To reduce 2014 taxable income, consider disposing of a passive activity in 2014, if doing so will allow you to deduct suspended passive activity losses. 

• If you own an interest in a partnership or S corporation, consider whether you should increase your basis in the entity so you can deduct a loss from it for this year.

Don’t hesitate to contact our firm if you’re considering taking any of the above actions or would like to consider other possibilities available in your particular situation to minimize tax liabilities in 2014.