For small corporations, built-in gain tax is one of the largest liabilities that must be factored into the company’s annual taxes. This tax applies to the sale or exchange of all assets owned by the corporation before conversion and can have a major impact on the company’s bottom line. Fortunately, there are strategies that small corporations can use to minimize their liability under this tax. Let’s explore them in greater detail.
Deferring Recognition of Gain or Loss
One way to minimize liability under small corporation built-in gain tax is to defer recognition of any gains or losses when selling or exchanging assets. In order to do this, companies must take advantage of certain sections of the Internal Revenue Code which allow them to postpone recognition until a later date. This can be done through various methods such as installment sales and reverse exchanges. When used properly, these methods can significantly reduce the amount of taxes owed on any gains from asset sales or exchanges.
Maximizing Tax Benefits Through Asset Transfers
Another strategy for minimizing liability under small corporation built-in gain tax is to transfer assets in ways that maximize available tax benefits. For example, if an asset has appreciated in value since it was acquired by the company, transferring it to a new owner may result in lower taxes than would otherwise apply if it were sold outright. Similarly, if an asset has depreciated since the acquisition, transferring it may reduce taxable income and thus minimize potential liabilities under this tax code section.
Structuring Transactions Properly
The last strategy for minimizing liability under small corporation built-in gain tax involves structuring transactions properly so as not to trigger any unnecessary taxes. Companies should carefully consider how they structure transactions and select those which will result in minimal taxation of their assets and profits. Additionally, they should take advantage of any available deductions or credits which might help offset any resulting liability due to this type of taxation.
Navigating the complexities of small corporation built-in gain tax can be a daunting task even for seasoned business owners; however, with the assistance of the tax experts at A Tax Defense and Accounting, LLC, you can ensure that your company stays within its budgeted limits while still taking advantage of available opportunities for reducing taxable liabilities associated with asset transfers and sales or exchanges. By implementing these strategies outlined above you will be able to minimize your potential liabilities while ensuring your business remains profitable and competitive in its industry sector.
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