The following are the tax dates to remember for December 2016:
- December 15
Due date for calendar-year corporations to pay the last installment of 2016 estimated income tax
- December 31
Deadline to complete 2016 tax-free gifts of up to $14,000 per recipient
- December 31
Deadline for paying expenses you want to be able to deduct on your 2016 income tax return
Be prepared for a higher social security wage base in 2017
For 2017, the wage base for withholding social security tax from wages has increased to $127,200, up from $118,500 in 2016.
The “wage base” is the amount of wages on which employers and employees must pay the 6.2% social security tax. The increased wage base means an additional 8,700 of your income is taxed.
The wage base does not affect the 1.45% Medicare payroll tax. Medicare tax is assessed on all wages and net income from self-employment, including amounts above the base. The 0.9% Additional Medicare Tax is not affected either. That tax applies to your compensation in excess of $250,000 when you’re married filing jointly ($200,000 when you’re single).
The federal payroll tax rate for employers and employees remains 7.65%, with social security tax withheld and paid at 6.2%, and Medicare tax withheld and paid at 1.45%.
Check your basis in your S corporation before the end of the year
Losses can be hard to take – so if you think your S Corporation will show a loss for 2016, now’s the time to plan to make sure you’ll get the full tax benefit.
The amount of the business loss you can deduct on your individual income tax return is limited to your basis in your S corporation stock and certain corporate debt. This is true even if the loss reported to you on Schedule K-1 is greater than your basis.
Here’s how basis works.
Typically, stock basis in an S corporation begins with the capital contribution you make to get the company started. Note that when you receive stock as a gift, an inheritance, or in place of compensation, your initial basis is calculated differently.
At the end of each taxable year, your stock basis is adjusted to reflect your business’s operating results. Taxable income increases your basis, while losses reduce it. Basis is also increased by capital you put into your company and reduced by amounts you withdraw, such as distributions.
After your stock basis reaches zero, you may be able to deduct additional losses, up to the extent of your debt basis. That’s the basis you have in loans you make to your company.
However, once your stock and debt basis are both reduced to zero, losses incurred are suspended, which means you get no current tax benefit. You can generally take suspended losses in future years, when you again have basis.
You can increase your basis – and your ability to take losses –by adding capital or making loans to your business.
Please call to discuss how basis affects your individual income tax return. We can guide you through the rules.