A cash method business can often accelerate or defer sales, billing and collection of revenue around year-end. If they sell their business or assets they can either use the installment method to defer capital gains, or elect out of that method to report the entire capital gain in the current tax year.
Businesses can accelerate or defer purchases of fixed assets and expenses around year-end as well. And, they have many options for how to depreciate and amortize fixed and intangible assets, respectively.
Accrual-method businesses can delay providing goods or services to customers until after Jan. 1. There are also special rules allowing accrual method taxpayers to deferring revenue received in advance of shipment of goods or services. Read about other smart moves for operating businesses on The Tax Advisor.
Keep an eye out on “tax extenders”on depreciation discussed in our blog post Smart Tax Savings Moves For 2015. Traders don’t often exceed old rules (which currently apply for 2015) allowing up to $25,000 of purchases for Section 179 (100%) depreciation whereas other types of businesses certainly do. The 50% bonus first-year depreciation deduction also lapsed but businesses can use the half-year conversion to similar effect.
If you expect debt cancelation and expect related debt-cancelation taxable income, it may pay to defer that taxable event to 2016.
Payroll and self-employment taxes
An operating business can use the S-Corp structure to reduce payroll taxes by 50% or more (subject to new guidance pending from the IRS). S-Corps don’t pass through self-employment income (SEI) triggering self-employment (SE) tax as partnerships and sole proprietorships do. Consider the SE tax reduction loophole for management companies and other types of business.
Traders use a S-Corp trading company (or C-Corp or S-Corp management company along with a trading partnership) to unlock employee-benefit plans including retirement and health insurance premium deductions. Sole proprietor traders can’t have these tax breaks. It’s hard to arrange them on trading partnership returns.
Both payroll and Solo 401(k) retirement plans must be executed or established before year-end. A SEP IRA can be established up until the due date of the tax return including extensions, although a Solo 401(k) is a much better plan for traders. Learn more in our blog post Retirement Plan Strategies For 2015.