PricewaterhouseCoopers 2008 Guide to Tax and Financial Planning

Chapter 13. Year‐End Planning for Business Owners

Year‐end planning for business owners should incorporate all of the personal strategies previously discussed, but it does not end there. Many additional considerations can generate tax savings for business owners and for their companies.

In a sole proprietorship, business tax savings puts more money directly in the hands of the business owner. When a business is operated in a pass‐through entity (e.g., S corporation, partnership, or limited liability company [LLC]), year‐end tax planning must be addressed at both the entity level and the individual level to enhance potential tax benefits. This is because these entities do not generally pay income taxes on their earnings. Instead, the income, deductions, and credits are passed through to the owners and reported on the owner's individual income tax returns. Owners of these types of entities, therefore, need to consider the individual year‐end tax‐planning ideas outlined in previous chapters, as well as tax planning for the business aimed at benefiting the owner's individual tax position while complementing, or not harming, the business' goals. It is not an easy task, but it is potentially very rewarding: For each $1,000 of income that a pass‐through business defers or each $1,000 of accelerated deductions, an owner in the top federal income tax bracket will save $350 of current federal income tax. Similarly, $100,000 of combined company year‐end income/deduction shifting can reduce ...