Operating your business as a C corporation, S corporation, or LLC can have its advantages — like limited liability protection.
But there are things you have to watch out for.
Exhibit #1: The related-party matching rule
If you’re not careful this rule will put your business on the cash method for deducting payments to related cash-method taxpayers.
The bottom line?
Like the Boy Scouts, “Be Prepared!” and read my new article titled Tax Tips: Don’t Get Surprised by the Related-Party Matching Rule.
Three ways our fact-filled article can help you:
- We’ll explain why it’s so important to understand the related-party matching rule. Under the rule, the business paying the money deducts the expense when the related party includes the money in his, her, or its income. The deduction is deferred, not lost, but can cause the income and deduction passed through by your S corporation, partnership, or LLC to be reported in different tax years. Or it can cause your C corporation to pay more in current-year income tax. We’ll give you all the details when you read the full article.
- We’ll tell you when the parties are considered “related.” For the rule’s purposes, there are seven categories of related parties. We’ll provide a complete list of them for you when you read the full article.
- You’ll learn how to plan around the matching rule. You can play it safe by making certain that the parties are not related, that you carefully time your payments, and/or change the type of payment. All will be explained when you read the full article.