Articles

Year-End Business Planning Provides Tax Savings: Debt Instruments

You may be able to reduce your tax liability through smart debt management planning. Consider whether to defer cancellation of debt (COD) income from the reacquisition of an applicable debt instrument in 2010. The business can elect to have the cancelled COD income included in gross income ratably over five tax years beginning with the fourth tax year following the tax year in which the repurchase occurs (i.e., beginning with 2014). Contact our office for more information.

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Year-End Business Planning Provides Tax Savings: Corporate Losses

Increase your basis in a partnership or S corporation if doing so will enable you to deduct a loss from it for this year. 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. 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 basis in (a) his S corporation stock, and (b) debt owed to him by the S corporation. Contact your CPA for a review of your options.

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Year-End Planning Provides Tax Savings Opportunities: Retirement Plan Rollovers

Facing a penalty for underpayment of estimated taxes and the increased withholding option is unavailable or won’t sufficiently address the problem? Take an eligible rollover distribution from a qualified retirement plan before the end of 2010. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2010. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2010, but the withheld tax will be applied pro rata over the full 2010 tax year to reduce previous underpayments of estimated tax. Contact your CPA with questions about this tax saving opportunity.

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