A winning combination for losing corporations

Article Abstract:

Raising capital often proves to be a problem for small businesses. Lenders tend to steer clear of them because of the high incidence of failure among such enterprises. Even when small businesses do succeed in obtaining debt financing, their survival is always threatened by burdensome interest payments. The only viable means of raising funds that seems to be available to small enterprises is the issuance of equity interests. The tax benefits offered by two provisions contained in the Internal Revenue Code (IRC), Subchapter S and IRC Section 1244, can enhance the appeal of this capital-raising strategy to investors. Under Subchapter S, a qualifying corporation's shareholders may consider corporate losses as if they were directly incurred by the shareholders themselves. Sec 1244 permits worthless stocks or those sold at a loss to be considered as partial or total ordinary loss.

Methods, Analysis, Finance, Column, Tax planning, Small business, S corporations, Loss deductions

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Good news for corporate taxpayers: no more capital gains taxes on real estate transactions

Article Abstract:

IRS-issued safe harbor regulations on the IRC Section 1031 provide a means for corporate taxpayers to avoid capital gains taxes on real estate and equipment transactions. The non-imposition of these taxes on almost all future commercial and investment real estate and equipment transactions is the IRS's way of encouraging the growth of such tax-free transactions. Tax-exempt transactions fall under three categories: a horse trade or a simple exchange of properties with the same value, an accomodated transaction, and a four-party transaction which employs a qualified intermediary. Corporate taxpayers may find tax-free transactions useful if they are in the process of expanding, divesting some holdings, putting properties on sale in areas subject to US taxation or transacting to acquire properties.

Corporate taxes, Corporations, Capital gains tax, Tax exemption, Tax exemptions

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Home office deduction eligibility

Article Abstract:

Tax deductions for home office expenses are governed by Section 280A, which specifies that an office must be used as the principal place of business. The Tax Court in 'Baie' (1980) interpreted this to mean the focal point of business. The court, in 'Soliman' (1990), abandoned the focal point test and prescribed a more liberal facts and circumstances test. The ruling cites four conditions for determining if a deduction can be allowed; these are: whether substantial time is spent working in the home office; whether essential business functions are performed; whether the taxpayer has another office; and whether the office is appropriately furnished. A significant consequence of a home office deduction is the deductibility of commuting expenses.

Courts, Tax deductions, Home offices, column, United States. Tax Court

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