Tax Services

  • Noelle Merwin
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Digital assets and taxes: What you need to know
Digital assets and taxes: What you need to know 1200 1200 Noelle Merwin

As the use of digital assets like cryptocurrencies continues to grow, so does the IRS’s scrutiny of how taxpayers report these transactions on their federal income tax returns. The IRS has flagged this area as a key focus. To help you stay compliant and avoid tax-related complications, here are the basics of digital asset reporting.

The definition of digital assets

Digital assets are defined by the IRS as any digital representation of value that’s recorded on a cryptographically secured distributed ledger (also known as blockchain) or any similar technology. Common examples include:

  • Cryptocurrencies, such as Bitcoin and Ethereum,
  • Stablecoins, which are digital currencies tied to the value of a fiat currency like the U.S. dollar, and
  • Non-fungible tokens (NFTs), which represent ownership of unique digital or physical items.

If an asset meets any of these criteria, the IRS classifies it as a digital asset.

Related question on your tax return

Near the top of your federal income tax return, there’s a question asking whether you received or disposed of any digital assets during the year. You must answer either “yes” or “no.”

When we prepare your return, we’ll check “yes” if, during the year, you:

  • Received digital assets as compensation, rewards or awards,
  • Acquired new digital assets through mining, staking or a blockchain fork,
  • Sold or exchanged digital assets for other digital assets, property or services, or
  • Disposed of digital assets in any way, including converting them to U.S. dollars.

We’ll answer “no” if you:

  • Held digital assets in a wallet or exchange,
  • Transferred digital assets between wallets or accounts you own, or
  • Purchased digital assets with U.S. dollars.

Reporting the tax consequences of digital asset transactions

To determine the tax impact of your digital asset activity, you need to calculate the fair market value (FMV) of the asset in U.S. dollars at the time of each transaction. For example, if you purchased one Bitcoin at $93,429 on May 21, 2025, your cost basis for that Bitcoin would be $93,429.

Any transaction involving the sale or exchange of a digital asset may result in a taxable gain or loss. A gain occurs when the asset’s FMV at the time of sale exceeds your cost basis. A loss occurs when the FMV is lower than your basis. Gains are classified as either short-term or long-term, depending on whether you held the asset for more than a year.

Example: If you accepted one Bitcoin worth $80,000 plus $10,000 in cash for a car with a basis of $55,000, you’d report a taxable gain of $35,000. The holding period of the car determines whether this gain is short-term or long-term.

How businesses handle crypto payments

Digital asset transactions have their own tax rules for businesses. If you’re an employee and are paid in crypto, the FMV at the time of payment is treated as wages and subject to standard payroll taxes. These wages must be reported on
Form W-2.

If you’re an independent contractor compensated with crypto, the FMV is reported as nonemployee compensation on Form 1099-NEC if payments exceed $600 for the year.

Crypto losses and the wash sale rule

Currently, the IRS treats digital assets as property, not securities. This distinction means the wash sale rule doesn’t apply to cryptocurrencies. If you sell a digital asset at a loss and buy it back soon after, you can still claim the loss on your taxes.

However, this rule does apply to crypto-related securities, such as stocks of cryptocurrency exchanges, which fall under the wash sale provisions.

Form 1099 for crypto transactions

Depending on how you interact with a digital asset, you may receive a:

  • Form 1099-MISC,
  • Form 1099-K,
  • Form 1099-B, or
  • Form 1099-DA.

These forms are also sent to the IRS, so it’s crucial that your reported figures match those on the form.

Evolving landscape

Digital asset tax rules can be complex and are evolving quickly. If you engage in digital asset transactions, maintain all related records — transaction dates, FMV data and cost basis. Contact your Smolin advisor with questions. This will help ensure accurate and compliant reporting, minimizing your risk of IRS penalties. 

  • Noelle Merwin
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Can you turn business losses into tax relief?
Can you turn business losses into tax relief? 1200 1200 Noelle Merwin

Even well-run companies experience down years. The federal tax code may allow a bright strategy to lighten the impact. Certain losses, within limits, may be used to reduce taxable income in later years.

Who qualifies?

The net operating loss (NOL) deduction levels the playing field between businesses with steady income and those with income that rises and falls. It lets businesses with fluctuating income to average their income and losses over the years and pay tax accordingly.

You may be eligible for the NOL deduction if your deductions for the tax year are greater than your income. The loss generally must be caused by deductions related to your:

  • Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
  • Casualty and theft losses from a federally declared disaster, or
  • Rental property (Schedule E).

The following generally aren’t allowed when determining your NOL:

  • Capital losses that exceed capital gains,
  • The exclusion for gains from the sale or exchange of qualified small business stock,
  • Nonbusiness deductions that exceed nonbusiness income,
  • The NOL deduction itself, and
  • The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren’t eligible, but partners and shareholders can use their separate shares of the business’s income and deductions to calculate individual NOLs.

What are the changes and limits?

Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back two years, forward 20 years, and offset up to 100% of taxable income. The TCJA changed the landscape:

  • Carrybacks are eliminated (except certain farm losses).
  • Carryforwards are allowed indefinitely.
  • The deduction is capped at 80% of taxable income for the year.

If an NOL carryforward exceeds your taxable income of the target year, the unused balance may become an NOL carryover. Multiple NOLs must be applied in the order they were incurred.

What’s the excess business loss limitation?

The TCJA established an “excess business loss” limitation, which took effect in 2021. For partnerships and S corporations, this limitation is applied at the partner or shareholder level, after the outside basis, at-risk and passive activity loss limitations have been applied.

Under the rule, noncorporate taxpayers’ business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2025, that threshold is $313,000 ($626,000 if married filing jointly). Remaining losses are treated as an NOL carryforward to the next tax year. In other words, you can’t fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years through 2028. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Plan proactively

Navigating NOLs and the related restrictions is complex, especially when coordinating with other deductions and credits. Thoughtful planning can maximize the benefit of past losses. Please consult with your Smolin advisor about how to proceed in your situation.

  • Noelle Merwin
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Still have tax questions? You’re not alone
Still have tax questions? You’re not alone 1200 1200 Noelle Merwin

Even after your 2024 federal return is submitted, a few nagging questions often remain. Below are quick answers to five of the most common questions we hear each spring.

1. When will my refund show up?

Use the IRS’s “Where’s My Refund?” tracker at IRS.gov. Have these three details ready:

  • Social Security number,
  • Filing status, and
  • Exact refund amount.

Enter them, and the tool will tell you whether your refund is received, approved or on the way.

2. Which tax records can I toss?

At a minimum, keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return.

So you can generally get rid of most records related to tax returns for 2021 and earlier years. (If you filed an extension for your 2021 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You should hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed legitimate returns. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years to be on the safe side.)

3. I missed a credit or deduction. Can I still get a refund?

Yes. You can generally file Form 1040-X (amended return) within:

  • Three years of the original filing date, or
  • Two years of paying the tax — whichever is later.

In a few instances, you have more time. For instance, you have up to seven years from the due date of the return to claim a bad debt deduction.

4. What if the IRS contacts me about the tax return?

It’s possible the IRS could have a problem with your return. If so, the tax agency will only contact you by mail — not phone, email or text. Be cautious about scams!

If the IRS needs additional information or adjusts your return, it will send a letter explaining the issue. Contact us about how to proceed if we prepared your tax return.

5. What if I move after filing?

You can notify the IRS of your new address by filling out Form 8822. That way, you won’t miss important correspondence.

Year-round support

Questions about tax returns don’t stop after April 15 — and neither do we. Reach out to your Smolin advisor anytime for guidance.

Cut Your 2024 Tax Bill with an IRA Contribution—But Act Fast
Cut Your 2024 Tax Bill with an IRA Contribution—But Act Fast 850 500 smolinlupinco

While the 2024 tax deadline is quickly approaching, it’s not here yet, which means you still have time to trim down what you owe. If you qualify, you still have time to make a deductible contribution to a traditional IRA right up until the April 15 filing deadline and lock in tax savings on your 2024 return.

Who qualifies?

Selling your home can come with a huge tax break. Unmarried sellers can exclude up to $250,000 in profit from federal income tax, while married couples filing jointly can exclude up to $500,000. 

You can make a deductible contribution to a traditional IRA if you meet one of the following criteria:

  • Neither you nor your spouse are active participants in an employer-sponsored retirement plan.

  • You or your spouse are covered by an employer plan, but your modified adjusted gross income (MAGI) is within the yearly limits based on your filing status.

2024 Income Limits for Deductible Contributions

If you’re covered by an employer-sponsored retirement plan, your ability to deduct a traditional IRA contribution depends on your income:

  • For married filing jointly, the deduction phases out if your MAGI is between $123,000 to $143,000.
  • For single or a head of household, the phaseout range is $77,000 to $87,000.
  • For married filing separately, the phaseout happens quickly, between $0 and $10,000

If you’re not covered by an employer plan but your spouse is, your deduction phases out between $230,000 and $240,000 of MAGI.

Traditional versus Roth IRAs

A deductible IRA contribution can help lower your tax bill now, and your earnings grow tax-deferred. But keep in mind—when you withdraw funds, they’ll be taxed as income. Plus, if you take money out before 59½, you could face a 10% penalty, unless an exception applies.

You also have until April 15 to contribute to a Roth IRA. Unlike traditional IRAs, Roth contributions aren’t deductible, but the trade-off is tax-free withdrawals—as long as the account has been open at least five years and you’re 59½ or older. There are income limits to make Roth IRA contributions.

If you’re married, you can still make a deductible IRA contribution even if you’re not working. Normally, you need earned income, like wages, to contribute to a traditional IRA; however, there’s an exception. If one spouse works and the other is a homemaker or not employed, the working spouse can contribute to a spousal IRA on behalf of the non-working spouse.

What are the contribution limits?

For 2024, if you’re eligible, you can contribute up to $7,000 to a traditional IRA and $8,000 if you’re age 50 or older. These contribution limits will stay the same for 2025.

Small business owners also have the option to set up and contribute to Simplified Employee Pension (SEP) plans until their tax return due date, including extensions. For 2024, the maximum SEP contribution is $69,000, which will increase to $70,000 for 2025.

How can you maximize your nest egg?

If you have questions or what to know more about IRAs and SEPs, reach out to your Smolin advisor. We can help you create the right tax-friendly retirement strategy so your savings work harder for you.

Cash or Accrual Accounting: Which is Right for Your Business?
Cash or Accrual Accounting: Which is Right for Your Business? 850 500 smolinlupinco

Your business can choose between cash or accrual accounting for tax purposes. While the cash method can provide certain tax advantages to those that qualify, the accrual method might be a better fit for some businesses. 

To maximize tax savings, you need to weigh both methods before deciding on one for your business. 

Small business tax benefits

Small businesses, as defined by the tax code, generally enjoy the flexibility of using either cash or accrual accounting. Various hybrid approaches are also allowed for some businesses. 

Before the Tax Cuts and Jobs Act (TCJA), the gross receipts threshold to classify as a small business was $1 million to $10 million depending on factors like business structure, industry, and if inventory significantly contributed to business income.

The TCJA established a single gross receipts threshold and increased it to $25 million (adjusted for inflation), expanding small business status benefits to more companies. In 2024, a small business is defined as having average gross receipts of less than $30 million for the preceding three-year period, up from $29 million in 2023.

Small businesses also benefit from simplified inventory accounting and exemptions from the uniform capitalization rules and business interest deduction limit.  S corporations, partnerships without C corporation partners, and farming businesses and certain personal service corporations may still use the cash accounting method, regardless of their gross receipts. 

Regardless of size though, tax shelters are ineligible for the cash accounting.

Potential advantages

Since cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid, they have more control over their tax liability. This includes deferring income by delaying invoices or shifting deductions forward by accelerating expense payments.

Accrual-basis businesses, on the other hand, recognize income when earned and expenses are deducted as they’re incurred, regardless of cash flow. This limits their flexibility to time income and deductions for tax purposes.

The cash method can improve cash flow since income is taxed in the year it’s received. This helps businesses make their tax payment using incoming funds. 

If a company’s accrued income is lower than accrued expenses though, the accrual method can actually result in a lower tax liability than the cash method. The accrual method also allows for a business to deduct year-end bonuses paid in the first 2½ months of the following tax year and tax deferral on some advance payments.

Considerations when switching methods

If you’re considering a switch from one method to the other, it’s important to consider the administrative costs involved. If your business follows the U.S. Generally Accepted Accounting Principles (GAAP), you’ll need to maintain separate books for financial and tax reporting purposes. You may also be required to get IRS approval before changing accounting methods for tax purposes. 

Reach out to your Smolin advisor to learn which method is best for your business.

Tax Treatment of Business Website Expenses
Tax Treatment of Business Website Expenses 850 500 smolinlupinco

Most businesses today rely on websites, but despite their widespread use, the IRS hasn’t provided formal guidelines for deducting their costs.

However, some guidance can be gleaned from existing tax laws that offer business taxpayers insights into the proper treatment of website cost deductions. 

Tax implications of hardware versus software

The hardware costs you might need to operate a website fall under the standard rules for depreciable equipment. For 2024, you can deduct 60% of the cost in the first year they are operational under the first-year bonus depreciation break.

This bonus depreciation rate was 100% for property placed in service in 2022, 80% in 2023, and will continue to decrease until it’s fully phased out in 2027 unless Congress acts to extend or increase it.

On the other hand, you may be able to deduct all or most of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. These deductions are subject to certain limitations.

For tax years beginning in 2024, the maximum Section 179 deduction is $1.22 million, subject to a phaseout rule. If more than $3.05 million in 2024 of qualified property is placed in service during the year, the deduction is phased out.

You also need to consider the limit on taxable income as your Sec. 179 deduction can’t be in excess of your business taxable income. The Section 179 deductions can’t create or increase an overall tax loss. However, any portion of Section 179 that can’t be claimed in the current year can be carried forward to future tax years, subject to applicable limitations.

Purchased software is generally treated similarly to hardware for tax purposes but there is a key difference when it comes to software licenses. Payments for licenses used on your website are typically considered ordinary and necessary business expenses, which means they can usually be deducted as business expenses for the current tax year.

What about software developed internally?

If you develop your website in-house or hire a contractor with no financial risk for the software’s performance, bonus depreciation might apply as explained above. If bonus depreciation doesn’t apply, taxpayers have two options:

  1. Immediate deduction. Deduct the entire cost in the year you pay or incur it.
  2. Amortization. Spread the cost over a five-year period,  starting from the middle of the tax year when the expenses were paid or incurred. This is generally the only option if bonus depreciation does not apply. 

There is an exception for advertising, though. If your website’s primary purpose is advertising, you can typically deduct the full development cost as an ordinary business expense.

What if you pay a third party?

Many businesses outsource website management to third-party providers. In these instances, payments made to those providers are typically considered ordinary and necessary business expenses and are deductible.

What about expenses before business begins?

Start-up costs can include website development expenses. You can generally claim up to $5,000 of these expenses in the year your business begins. However, if your total start-up costs exceed $50,000, this $5,000 is gradually reduced. Any remaining start-up costs must be capitalized and spread out (amortized) over 60 months, starting from the month your business officially launches. 

Determining business expenses and deductions can be a complex process. Reach out to your Smolin advisor for help finding the appropriate tax treatment of your website costs. 

Self-Directed IRAs: A Double-Edged Sword
Self-Directed IRAs: A Double-Edged Sword 850 500 smolinlupinco

Traditional and Roth IRAs are already powerful tools for estate planning, but a “self-directed” IRA can take their benefits to the next level. They can allow you to invest in alternative assets that might offer higher returns but they also come with their own set of risks that could lead to unfavorable tax consequences. 

It’s important to handle these investments with caution.

Exploring alternative investments

Unlike traditional IRAs, which usually offer a narrow selection of stocks, bonds, and mutual funds, self-directed IRAs allow for a variety of alternative investments. These can include real estate, closely held business interests, commodities, and precious metals. However, they can’t hold certain assets like S corporation stock, insurance contracts, and collectibles (like art or coins).

From an estate planning perspective, self-directed IRAs are particularly appealing. Imagine transferring real estate or stock into a traditional or Roth IRA and allowing it to grow on a tax-deferred or tax-free basis for your heirs.

Risks and tax traps

Before diving in, it’s crucial to have an understanding of the significant risks and tax traps of self-directed IRAs:

  • Prohibited Transaction Rules. These rules restrict interactions between an IRA and disqualified persons, including yourself, close family members, businesses you control, and your advisors. This makes it challenging for you or your family members to manage or interact with business or real estate interests within the IRA without risking the IRA’s tax benefits and incurring penalties.
  • Unrelated Business Income Taxes. IRAs that invest in operating companies may face unrelated business income taxes, payable from the IRA’s funds.
  • Unrelated Debt-Financed Income. Investing in debt-financed property through an IRA could create unrelated debt-financed income, leading to current tax liabilities.

Proceed with caution

Remember, if you’re considering a self-directed IRA, it might offer increased flexibility, but it also demands a higher level of due diligence and oversight. 

Assess the types of assets you’re interested in carefully and weigh the potential benefits against the risks. Reach out to your Smolin advisor to determine if a self-directed IRA is right for you.

Decoding Corporate Estimated Tax: Which Method is Best for You?
Decoding Corporate Estimated Tax: Which Method is Best for You? 850 500 smolinlupinco

With the next quarterly estimated tax payment deadline coming up on September 16, it’s the perfect time to brush up on the rules for computing your corporate federal estimated payments. Ideally, your business can pay the minimum amount of estimated tax without triggering any penalties for underpayment. 

But how do you determine that amount? To avoid penalties, corporations must pay estimated tax installments equal to the lowest amount calculated using one of these four methods: 

Current Year Method

Pay 25% of the tax shown on the current tax year’s return (or, if no return is filed, 25% of the tax for the current year) by each of four corporate installment due dates –  generally April 15, June 15, September 15 and December 15. If a due date falls on a Saturday, Sunday or legal holiday, the payment is due the following business day.

Preceding Year Method 

Pay 25% of the tax shown on the return for the preceding tax year by each of four installment due dates. For 2022, corporations with taxable income of $1 million or more in any of the last three tax years can only use the preceding year method to determine their first required installment payment. Additionally, this method is not available to corporations whose last tax return covered less than a full year (i.e. new corporations) or corporations without a tax return from the previous year showing some tax liability.

Annualized Income Method

Under this option, a corporation can avoid the estimated tax underpayment penalty if it pays its “annualized tax” in quarterly installments. The annualized method estimates tax based on the corporation’s taxable income for the months leading up to the installment due date. It also assumes income will stay consistent throughout the year.

Seasonal Income Method

Corporations with recurring seasonal patterns of taxable income can annualize income by assuming income earned in the current year is earned in the same pattern as in preceding years. There’s a somewhat complicated mathematical test corporations must pass to establish that they meet the threshold to qualify to use this method.

If you think your corporation might qualify, reach out to your Smolin Advisor for assistance making that determination.If you find yourself needing to adjust estimated tax payments, corporations are able to switch between the four methods during the given tax year. Let the Smolin team help you determine the best method for your corporation.

Tax Breaks for Family Caregivers: Are You Eligible?
Tax Breaks for Family Caregivers: Are You Eligible? 850 500 smolinlupinco

Caring for an elderly relative is a privilege that offers many rewards: a deeper bond with your loved one, the knowledge that you are making an impact, and the peace of mind knowing they are in good hands. There are also potential tax benefits that can help lighten the load of caregiving. 

1. Medical expenses. When you provide over 50% of your loved one’s support, including medical expenses, they qualify as your “medical dependent” on your tax return. This allows you to include their qualified medical expenses along with your own when you itemize, which can potentially lower your income. The test for determining whether an individual qualifies as your “medical dependent” is less stringent than that used to determine “dependents,” which is covered in more detail below. 

In order to claim medical expense deductions, the total costs must exceed 7.5% of your adjusted gross income (AGI). 

Deductible medical expenses include costs for qualified long-term care services required by a chronically ill individual. Eligible long-term care insurance premiums can also be deducted; however, there is an annual cap on the amount. The cap is based on age, and in 2024 goes from $470 for an individual aged 40 or less to $5,880 for an individual over 70.

2. Filing status. You may qualify for “head-of-household” status by virtue of the individual you’re caring for if you are not married and:

  • The person you’re caring for lives in your household,
  • You cover more than half the household costs,
  • The person qualifies as your “dependent,” and
  • The person is a relative.

If you are caring for your parent, they do not need to live with you. As long as you provide more than half of their household costs and they qualify as your dependent, you can claim head of household status which has a higher standard deduction and lower tax rates than a single filer.

While dependency exemptions are currently on hold for 2018 through 2025, the rules for determining who qualifies as a dependent still apply when determining eligibility for other tax benefits, like head-of-household filing status.

The following must be true for the tax year you are filing in order for for an individual to qualify as your “dependent”:

  • You provide more than 50% of their support costs,
  • They must either live with you or be related,
  • They must not have gross income in excess of an inflation-adjusted exemption amount,
  • They can’t file a joint return for the year, and
  • They are a U.S. citizen or a resident of the U.S., Canada or Mexico.

3. Dependent care credit. In cases where your loved one qualifies as your dependent, lives with you and is physically or mentally unable to take care of themselves, you may qualify for the dependent care credit. This credit is designed to account for costs incurred for their care necessary while you and your spouse go to work.

4. Nonchild dependent credit. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) created a credit of up to $500 dependents who don’t qualify for the Child Tax Credit. This could apply to a dependent parent; however, they must pass the aforementioned gross income test to be classified as your dependent. You must also pay over half of your parent’s support.

If your adjusted gross income (AGI) is above $200,000 ($400,000 for a married couple filing jointly), this credit is reduced by $50 for every $1,000 that your AGI exceeds the threshold.

Contact your Smolin Advisor to explore the tax implications of financially supporting and caring for an elderly relative.

Is Switching to an S-Corp Right For You? A Tax Guide For Business Owners
Is Switching to an S-Corp Right For You? A Tax Guide For Business Owners 850 500 smolinlupinco

The type of business you run (sole proprietorship, partnership, limited liability company or LLC, C corporation, or S corporation) can greatly impact your tax bill. Choosing the right one is important from the get-go, but you can switch from one entity to the other if it makes sense to maximize your tax benefits.

For instance, S corporations commonly provide substantial tax benefits over C corporations; however, there is the potential for costly tax issues that should be considered before making a decision on whether or not to convert from a C corporation to an S corporation.

Here are four considerations to help guide your decision:

1. LIFO Inventory Tax: If your C corporation uses a last-in, first-out (LIFO) inventory method, converting to an S corporation can trigger a tax payment on benefits gained by using LIFO. While this tax can be paid over four years, you should weigh it against any potential tax gains you’ll receive by converting to S status.

2. Built-in Gains Tax: S corporations generally do not pay taxes on their profits. However, if your business was formerly a C corporation, you could be taxed on certain profits (like appreciated property) that were already owned before the switch. This tax applies if those assets were sold within five years of the switch to being an S corp. While this tax is a drawback, there are situations where the tax benefits of an S election outweigh this cost.

3. Passive Income: S corporations with a history as C corporations may face a special tax on passive investment income (such as dividends, interest, rents, royalties, and stock sale gains) that exceeds 25% of their overall income, and they carried over profits from their C corporation years. Owing this tax for three consecutive years can cancel the S corporation status! There are ways to avoid this tax, like distributing accumulated earnings and profits to shareholders or limiting passive income. 

4. Unused Losses: If your C corporation has accumulated losses, they cannot be used to offset the S corporation’s income, nor can they be passed through to shareholders. If the losses can’t be carried back to an earlier C corporation year, you need to weigh the cost of giving up the losses against the potential tax savings of becoming an S corporation.

Beyond Taxes: Other Considerations

These are just some of the factors to consider when switching from C to S status. For example, employee-owners of S corporations may not qualify for all the tax-free benefits available to C corporations. There can also be complications for shareholders who have outstanding loans from their qualified plans. These factors need to also be taken into account to have a clear picture of the implications when making your decision.If you’re considering changing your business structure, reach out to a Smolin Advisor. We can explain your options and potential strategies that can minimize your tax burden. 

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