I’ve been slammed with last minute tax strategies for 2008. I have clients who have made a ton of money and clients who have lost of a ton of money. There aren’t too many in between – it’s usually one way or the other.
Some of those that have lost money are discovering that those losses can be a huge benefit right now. Here are two real-life stories:
One of my new clients has a C Corporation that is 8 years old. The first year it ran a slight gain, we can’t find the next year’s return and the 3rd year showed another slight gain, but it was offset by a net operating loss carry-forward. (That came from the missing year) Up until 2008, each year has had a loss. Then in 2008 there was a bunch of income. It wasn’t the economy so much as it was him finding the sweet spot in his business. It took trying a few things and then one of them hit. 2009 will be even bigger. Now here’s the problem – the missing 2003 return. How much loss was there? It seems like no one has a copy of it, so we’ll have to request it from the IRS and that can take months. Meanwhile, how do we handle the year-end tax planning? Plus, the previous accountant had never properly filed one of the schedules on the return and had not made a required election on the net operating loss. So, we’re stuck trying to clean up a mess in order to take advantage of the loss. If we can solve some of the paperwork issues, he’ll have a loss that equals about $11,000 in taxes. It’s worth a little effort to get that back for him.
The lesson here is that even though a loss may feel discouraging at the time, it can be an asset when things turn. And if you’ve made up your mind that all you have to do is get up one more time then you fall down, things will always turn.
Another client had a bad 2007 and a disastrous 2008. He lost $40 million in 2008. He’s moving heaven and earth to take advantage of that loss in 2008 so that he can take a loss carryback to 2006, the last year he had a major profit. You can go back 2 years only with net operating losses.
One of the best ways to quickly pay less tax is to start a home based business. You will likely start off with a loss, most everyone does. That loss can mean real cash in your pocket when it comes to your taxes.