A three-step strategy to save tax when selling appreciated vacant land
Let’s say you own one or more vacant lots. The property has appreciated greatly and you’re ready to sell. Or maybe you have a parcel of appreciated land that you want to subdivide into lots, develop them and sell them off for a big profit. Either way, you’ll incur a tax bill. There’s a strategy to consider that allows favorable long-term capital gain tax treatment (rather than ordinary income treatment) for all the pre-development appreciation in the value of your land. 1) Establish an S corporation. 2) Sell the land to the S corp. 3) Have the S corp develop the land and sell it off. Several rules and limits apply, so this isn’t a DIY project. Contact us for assistance and to avoid pitfalls.
Tax tips when buying the assets of a business
If you’re buying a business, you want the best results possible AFTER taxes. You can potentially structure a purchase in two ways: 1) Buy the business assets. 2) Buy the seller’s entity ownership interest. If you’re buying assets, you must allocate the purchase price to the specific assets acquired. The amount allocated to each asset becomes the initial tax basis of that asset. For depreciable and amortizable assets (such as furniture, equipment, buildings, software and intangibles such as customer lists), the initial tax basis determines the post-acquisition tax deductions. The allocation process can lead to better or worse post-acquisition tax results. Contact us for assistance.
Businesses must face the reality of cyberattacks and continue fighting back
Many experts are now urging business owners to view cyberattacks as more of a certainty than a possibility. Why? Because they seem to be happening to just about every company in one way or another. What can your small-to-midsize business do to protect itself? First and foremost, you need a comprehensive cybersecurity strategy that accounts for not only your technology, but also your people, processes and as many known external threats as possible. The good news is there are free resources available online, such as policy templates and program frameworks. However, you may need to invest in an IT consultant for customized assistance. For help managing your technology costs, contact us.
The tax advantages of including debt in a C corporation capital structure
Let’s say you plan to use a C corporation to operate a newly acquired business or you have an existing C corp that needs more capital. Be aware that the federal tax code treats corporate debt more favorably than corporate equity. So for shareholders of closely held C corps, it can be a tax-smart move to include in the corporation’s capital structure some third-party debt (owed to outside lenders) and/or some owner debt. The reasons have to do with the income tax rate, the capital gains / dividend tax rate and the double taxation that occurs when a corporation pays tax on its profits and shareholders pay tax again when the profits are distributed as dividends. Contact us about your situation.
8 key features of a customer dispute resolution process for businesses
No matter how carefully you run your business, customer disputes will likely happen. You can protect your company’s reputation and strengthen its brand with an effective customer dispute resolution process. Consider including these eight key features: 1) Accessible communication channels, so customers can easily contact you. 2) An efficient timeline that lets customers know what you’re going to do. 3) Empathy and patience on the part of customer-facing staff. 4) Rigorous investigatory techniques. 5) Strong data protection. 6) Proactive follow-ups during investigations. 7) Timely resolution of disputes. 8) Documentation and analysis of incidents so you can continuously improve the process.
Taxes when you sell an appreciated vacation home
If you’re selling a vacation home at a profit, what will you owe in taxes? It depends on whether you’ve used the home as your principal residence for a time or whether you’ve rented it out. If you haven’t done either, the principal home sale gain exclusion tax break (up to $250,000 or $500,000 for a married couple) is unavailable. Your vacation home sale profit will be treated as a capital gain. If you’ve owned the property for more than a year, the gain will be taxed at no more than the 20% top federal rate on long-term capital gains, plus the 3.8% net investment income tax, if applicable. Other rules apply to a home used as a rental or principal residence. Contact us about your situation.
B2B businesses need a cohesive strategy for collections
If your company operates in the business-to-business (B2B) marketplace, you’ve probably experienced collections challenges. There’s no easy solution, of course. But you can “grease the wheels,” so to speak, by devising and always improving a methodical collections process. Start with payment terms that are written in unambiguous language and include specific due dates, payment methods, and late-payment penalties. Invoice promptly and accurately, minding all the details and monitoring metrics such as days sales outstanding and average days delinquent. Establish a timeline for payment reminders and follow-ups. Today’s software can help automate this part of the process. Contact us for help.
Growing your business with a new partner: Here are some tax considerations
There are several financial and legal implications when adding a new partner to a partnership. Here’s an example to illustrate: You and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to the business. Assume that your basis in […]
Pay attention to the tax rules if you turn a hobby into a business
Many people dream of turning a hobby into a business. You probably won’t have any tax problems if your new business is profitable over a certain period of time. But what if the venture consistently generates losses (deductions exceed income) and you claim them on your tax return? In an audit, the IRS may say it’s a hobby (an activity not engaged in for profit) rather than a business. Then you can’t deduct losses. There are 2 ways to avoid the hobby loss rules: 1) Show a profit in at least 3 out of 5 consecutive years (2 out of 7 years for certain horse businesses). 2) Run the venture in a way that shows you intend to turn it into a profit maker rather than a hobby. Contact us to learn more.
When partners pay expenses related to the business
It’s not unusual for a partner to incur expenses related to the partnership’s business. This is especially likely to occur in service partnerships such as an architecture or law firm. When a partner can be reimbursed for business expenses under a partnership agreement or standard operating procedures, the partner should turn them in for reimbursement. Otherwise, the partner can’t deduct the expenses on his or her tax return. On the partnership side, the business should have a written firm policy that clearly states what will and won’t be reimbursed, including home office expenses if applicable. (This applies to members of LLCs that are treated as partnerships for federal tax purposes.)
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