Businesses
usually
want
to
delay
recognition
of
taxable
income
into
future
years
and
accelerate
deductions
into
the
current
year.
But
when
is
it
wise
to
do
the
opposite?
And
why
would
you
want
to?
One
reason
might
be
tax
law
changes
that
raise
tax
rates.
The
Biden
administration
has
proposed
raising
the
corporate
federal
income
tax
rate
from
its
current
flat
21%
to
28%.
Another
reason
may
be
because
you
expect
your
noncorporate
pass-through
entity
business
to
pay
taxes
at
higher
rates
in
the
future
and
the
pass-through
income
will
be
taxed
on
your
personal
return.
There
have
also
been
discussions
in
Washington
about
raising
individual
federal
income
tax
rates.
If
you
believe
your
business
income
could
be
subject
to
tax
rate
increases,
you
might
want
to
accelerate
income
recognition
into
the
current
tax
year
to
benefit
from
the
current
lower
tax
rates.
At
the
same
time,
you
may
want
to
postpone
deductions
into
a
later
tax
year,
when
rates
are
higher
and
the
deductions
will
be
more
beneficial.
To
fast-track
income
Consider
these
options
if
you
want
to
accelerate
revenue
recognition
into
the
current
tax year:
-
Sell
appreciated
assets
that
have
capital
gains
in
the
current
year,
rather
than
waiting
until
a
later
year.
-
Review
the
company’s
list
of
depreciable
assets
to
determine
if
any
fully
depreciated
assets
are
in
need
of
replacement.
If
fully
depreciated
assets
are
sold,
taxable
gains
will
be
triggered
in
the
year
of
sale.
-
For
installment
sales
of
appreciated
assets,
elect
out
of
installment
sale
treatment
to
recognize
gain
in
the
year
of
sale.
-
Instead
of
using
a
tax-deferred
like-kind
Section 1031
exchange,
sell
real
property
in
a
taxable
transaction.
-
Consider
converting
your
S
corporation
into
a
partnership
or
LLC
treated
as
a
partnership
for
tax
purposes.
That
will
trigger
gains
from
the
company’s
appreciated
assets
because
the
conversion
is
treated
as
a
taxable
liquidation
of
the
S corp.
The
partnership
will
have
an
increased
tax
basis
in
the
assets.
-
For
construction
companies
with
long-term
construction
contracts
previously
exempt
from
the
percentage-of-completion
method
of
accounting
for
long-term
contracts:
Consider
using
the
percentage-of-completion
method
to
recognize
income
sooner
as
compared
to
the
completed
contract
method,
which
defers
recognition
of
income
until
the
long-term
construction
is
completed.
To
postpone
deductions
Consider
the
following
actions
to
postpone
deductions
into
a
higher-rate
tax
year,
which
will
maximize
their
value:
-
Delay
purchasing
capital
equipment
and
fixed
assets,
which
would
give
rise
to
depreciation
deductions.
-
Forego
claiming
big
first-year
Section
179
deductions
or
bonus
depreciation
deductions
on
new
depreciable
assets
and
instead
depreciate
the
assets
over
a
number
of
years.
-
Determine
whether
professional
fees
and
employee
salaries
associated
with
a
long-term
project
could
be
capitalized,
which
would
spread
out
the
costs
over
time.
-
Buy
bonds
at
a
discount
this
year
to
increase
interest
income
in
future
years.
-
If
allowed,
put
off
inventory
shrinkage
or
other
write-downs
until
a
year
with
a
higher
tax
rate.
-
Delay
charitable
contributions
into
a
year
with
a
higher
tax
rate.
-
If
allowed,
delay
accounts
receivable
charge-offs
to
a
year
with
a
higher
tax
rate.
-
Delay
payment
of
liabilities
where
the
related
deduction
is
based
on
when
the
amount
is
paid.
Contact
us
to
discuss
the
best
tax
planning
actions
in
the
light
of
your
business’s
unique
tax
situation.
©
2024