March 2013 Client Newsletter

Last year I wrote the one thing I learned many years ago living in our imaginary tax world is that nothing is black or white only gray. Deductions can happen or can’t.  Credits are available and sometimes not.  Income is taxable and then it isn’t.

Most of my small business clients file their taxes as either a small business corporation or sole proprietor.  In both cases the draw that you take from your business is not taxable.  In both cases you are taxed on the net income of your business.  You have what we call basis in that money you draw out of your business.   In other words you are going to pay taxes on that money already, so you are entitled to take it out of your business.

Small business corporations have a little more complicated rules.  Essentially you are allowed to take money out of your corporation up to your investment, adding your income, subtracting your losses, subtracting your draws (we call them distributions other than dividends) and adding a Heinz 57 list of additions before paying any tax on the money you draw from your business. The bottom line is that with a few exceptions....the gray...you do not have to pay taxes on the money you draw out of your business.   

The due date for your 2012 corporate tax return was March 15, 2013.  Clients who did not file by the due date can relax.  We filed an automatic six month extension for you.