Monthly Archives: August 2016

Will your business have a net operating loss? Make the most of it

When the deductible expenses of a business exceed its income, a net operating loss (NOL) generally occurs. If you’re planning ahead or filing your income tax return after an extension request and you find that your business has a qualifying NOL, there’s some good news: The loss may generate some tax benefits.

Carrying back or forward

The specific rules and exact computations to figure an NOL can be complex. But when a business incurs a qualifying NOL, the loss can be carried back up to two years, and any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow during a time when you need it.

However, there’s an alternative: The business can elect instead to carry the entire loss forward. If cash flow is fairly strong, carrying the loss forward may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.

Your situation is unique

Your business may want to opt for a carryforward if its alternative minimum tax liability in previous years makes the carryback less beneficial. In the case of flow-through entities, owners might be able to reap individual tax benefits from the NOL. Also note that there are different NOL rules for farming businesses.

Please contact us if you’d like more information on the NOL rules and how you can maximize the tax benefits of an NOL.

© 2016

Do you qualify for a moving expense deduction? Four questions to ask.

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Follow all rules when transferring assets to an irrevocable trust

Irrevocable trusts can provide a variety of benefits, including gift and estate tax savings, creditor protection, and the ability to control how assets are distributed. To preserve these benefits, however, it’s critical to respect all trust formalities.

Case in point

Here’s an example of just how critical this can be: In U.S. v. Tingey, a taxpayer set up an irrevocable trust for the benefit of his wife and children, naming someone else as trustee. Around the same time, the taxpayer and his wife purchased a ski cabin, the title to which was transferred to the trust. Later, the couple got into financial trouble and ended up owing more than $2 million in federal taxes. The government successfully foreclosed several tax liens on the ski cabin.

The couple argued that the government couldn’t enforce the liens against the ski cabin, because title was held by the trust. But the 10th U.S. Circuit Court of Appeals disagreed. The court explained that a tax lien may be satisfied by property if it’s held by the taxpayer’s “nominee” — in other words, “the taxpayer has engaged in a legal fiction by placing legal title . . . in the hands of a third party while actually retaining some or all of the benefits of true ownership.”

Several factors indicated that the couple had done just that. Among other things, they maintained the ski cabin, paid the utility bills and insurance premiums (on a policy issued in the taxpayer’s name), used the cabin without the trustee’s permission or supervision, and rented the cabin to friends without the trustee’s knowledge.

Tread carefully when transferring assets

As this case illustrates, if you continue to treat assets as your own after transferring them to an irrevocable trust, they may be at risk. If you have questions regarding asset transfers, contact us.

© 2016