What do a Sub S Corporation, a Partnership, an LLC and an individual have in common? Everyone uses the calendar year as their fiscal year. December is coming again, and with it are the end of the year taxes. Is it going to be a good year for your business? Are you looking into the eyes of the IRS tiger with the sinking feeling that this is going to be a very satisfying meal? If this is your situation, calculate your taxes now. Try to determine approximately what your taxable income will be. Calculate your taxes based on these estimates. Then consider what alternatives are available to reduce this tax burden. The AC corporation may have a non-calendar fiscal year. When the corporation is incorporated, it may designate the closing month of its fiscal year. This information is included on the SS-4 form when the corporation requests its EIN (Employer Identification Number) from the IRS.
How does this help you? Assume that your business is going to have substantial taxable income due at the end of your tax year. You form a Nevada corporation and set your tax year to end in a month other than December. Then, using legitimate business procedures, you can spend a substantial portion of the taxable income in the Nevada corporation, reducing your existing business profits and, of course, reducing your personal taxes. When used correctly, inserting a Nevada corporation into your cash flow loop will not only substantially reduce your taxes, it will also give you greater flexibility in your tax planning.
Points to Ponder: C Corporations may have a non-calendar fiscal year. When the corporation is first organized, you, and not the IRS, determine in which month the corporation will pay its taxes. If you own 50% or more of the voting shares of 2 or more corporations, the IRS may declare them a member of a “controlled group” and require them to file a single consolidated tax return. This requirement will remove the benefits described above. Under the IRS “Rules of Attribution,” your family members, including your spouse, children, siblings, and parents, are counted as one person for stock ownership purposes. Therefore, dividing the corporate stock among your family will not reduce “your” stock interest and will eliminate the “controlled group” problem. Although “bearer shares” are permitted in some jurisdictions, they alone do not satisfy ownership issues. Conversely, “bearer shares” can increase scrutiny of the corporation.