11/ 23/ 2005
The article “Better Late Than Never” on page 18 of the Dec./Jan. issue listed lots of great ideas on last-minute moves to make before Dec. 31 to save on your 2005 returns. Below are two more tidbits that might be worth considering. Check with your tax professional to make sure the ideas make sense for your business.
Pay bonuses. Valued employees can be rewarded with additional compensation. Special break for accrual basis businesses: Bonuses to rank-and-file employees declared in 2005 by accrual-basis businesses are deductible this year as long as they are actually paid by March 15, 2006.
Protect your tax losses. If 2005 was not a good year for your business, make sure you can use tax losses to your advantage. For example, if you are an S corporation shareholder, be sure there is sufficient basis in your corporate stock and debt (money you loan to the corporation) to fully utilize your share of corporate losses. If you need more basis to offset losses, make additional loans to the corporation before year-end. Or, if there are outstanding third-party loans to the corporation for which you have given your personal guarantee, ask the lender to recast the loan making you primarily liable for the debt so that you can add this amount to your basis.
