very small business tax question

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we are a very small business that does engineering for and sells air pollution equipment. we have been in business for over 30 yrs but our business has never shown a profit as it all goes into salaries and repayment of personal loans for lean years when we can't meet the payroll.

The last 2 years however were better and we are trying to figure out how to avoid being taxed on money that we will probably need for next year's salaries if no new orders come in.

any thoughts?
thanks.

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If you profit, then you pay tax. If you can spend it on legitimate business expenses and don't show profit, then you don't pay tax. There you go, that'll be $200

Pay one or more of your employees an advance on next year's salaries. They get taxed on it this year since you'll 1099 them on it in 2016. This keeps your business profits down for this year and you start 2017 at an advantage, since you will owe your employees less for work they'll be doing next year. Make sure you pay them minimum wage and that you're not in violation of any laws or contract terms/collective bargaining. IANAL or CPA.

DTASFAB said:   Pay one or more of your employees an advance on next year's salaries. They get taxed on it this year since you'll 1099 them on it in 2016. This keeps your business profits down for this year and you start 2017 at an advantage, since you will owe your employees less for work they'll be doing next year. Make sure you pay them minimum wage and that you're not in violation of any laws or contract terms/collective bargaining. IANAL or CPA.
  Employee quits and you may have a hard time clawing back the salary advance.
 

fwuser12 said:   
DTASFAB said:   Pay one or more of your employees an advance on next year's salaries. They get taxed on it this year since you'll 1099 them on it in 2016. This keeps your business profits down for this year and you start 2017 at an advantage, since you will owe your employees less for work they'll be doing next year. Make sure you pay them minimum wage and that you're not in violation of any laws or contract terms/collective bargaining. IANAL or CPA.
  Employee quits and you may have a hard time clawing back the salary advance.

  You choose the chance you take.  Choose which employee(s) carefully.

Or maybe a salesperson's draw. If it is your best salesperson, they will probably stick around. Or, if a small company, it might be a relative or trusted person.

No magic tricks available for sure.

If you have a loss for 3 years they no longer consider you a business and your a hobby to the IRS

remmymom said:   we are a very small business that does engineering for and sells air pollution equipment. we have been in business for over 30 yrs but our business has never shown a profit as it all goes into salaries and repayment of personal loans for lean years when we can't meet the payroll.
 

Loan repayments (whether to yourself, or a bank) are not deductible. Only interest is. If you're been operating at a loss for 30 years, you'd have a net operating loss carryforward on your tax return so you wouldn't owe taxes. That said, if you've been operating at a loss for ~30 years, either your books are wrong or you're an incredibly inept business person. And by incredible, I mean not credible, as in I don't believe it. 

remmymom said:   we are a very small business that does engineering for and sells air pollution equipment
  Surprised the EPA hasn't shut you down years ago.

In past loss years, you covered the losses with loans and used the loss to reduce your taxes on other income?
And in a profit year, you paid down the loans and don't want to pay taxes on the profits?

Or the business is taxed as a corporation and built up a Net Operating Loss carryforward in the loss years?

Sounds like they're operating as a not-for-profit if they are pumping all the extra profits into salaries. Might as well make it official instead of claiming to be a for-profit business.

Have you looked into Section 179? With that you could treat up to half a million in equipment as a business expense on your tax return.

Might be worth doing some research into.

DTASFAB said:   
fwuser12 said:   
DTASFAB said:   Pay one or more of your employees an advance on next year's salaries. They get taxed on it this year since you'll 1099 them on it in 2016. This keeps your business profits down for this year and you start 2017 at an advantage, since you will owe your employees less for work they'll be doing next year. Make sure you pay them minimum wage and that you're not in violation of any laws or contract terms/collective bargaining. IANAL or CPA.
  Employee quits and you may have a hard time clawing back the salary advance.

  You choose the chance you take.  Choose which employee(s) carefully.

  Give yourself a bonus for finally making a profit.

Blluitt said:   Sounds like they're operating as a not-for-profit if they are pumping all the extra profits into salaries. 
  is that a good thing? 

rufflesinc said:   
Blluitt said:   Sounds like they're operating as a not-for-profit if they are pumping all the extra profits into salaries. 
  is that a good thing? 

  This, in and of itself, is not uncommon. Closely held C corps will often do this. However, if that's the case, OP is doing something questionable using personal loans if not tracking it very well.

I don't understand why one would just randomly decide to switch a for profit corporation into a nonprofit just because they aren't making profits. Maybe if they have shareholders and the board's worried about liability for certain decisions.

atikovi said:   
remmymom said:   we are a very small business that does engineering for and sells air pollution equipment
  Surprised the EPA hasn't shut you down years ago.

  Then again the next 4-8 years might be very profitable for them now?



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