Year-End Tax Strategies for Businesses


Gift shares of stock to family members who are in a low tax bracket before declaring a dividend, as part of a larger plan to shift ownership of the business to younger family members.

The owners of pass-through entities, such as S corporations and partnerships, have the income taxed on their personal tax returns.  The key is to:

Have sufficient basis to deduct losses.  The loss of pass-thru entities are deductible only to the extent the owner has basis in the entity.  Basis is created by investing in the entity or making a loan to it.

If you are planning this year to deduct your losses, check to see if your basis is adequate to absorb the losses.  If it’s determined your basis is not adequate to deduct the losses you can correct the situation by making a loan to your company by year-end.

Adjust personal tax payments to pay business tax.  The tax on business income from a pass-through entity must be paid by the owner either through estimated tax payments or payroll withholdings.  It is important for business owners to estimate how much income they will be receiving from the business in order not to be subject to penalties and interest charges for underpayment of their taxes.

You can avoid penalties and interest charges by having more taxes withheld from your wages before year-end.  Taxes withheld from wages is treated as if it had been evenly withheld throughout the year.

Write down inventory.  If your company has inventory that has declined in value you can deduct the decline in value.  For example, document a reduced market value for the inventory by making a bona fide offer to sell some of it at a lowered price within 30 days of year-end.

Set-up deductible retirement accounts.  Most company retirement plans, including 401(k) plans, must be set up by December 31 to receive deductible contributions for 2014.  Other kinds of plans can be set up after year-end, but make your choice among all possible options before then.

Bad debts.  These become deductible only when they lose all their value and by companies who use the accrual basis accounting.  Review your accounts receivable for uncollectable accounts.