First, business losses are subject to several limitations. In response to the 2020 pandemic, businesses or their owners may carry 2018, 2019, and 2020 losses back five years and get tax refunds. We will go through a “big picture” review of the net operating loss (NOL), basis, at-risk, and passive loss limitations and how they affect income and self-employment tax. The review will include whether taxpayers benefit from deducting losses currently or suspending them until they have higher earnings. We will also briefly discuss other doctrines under which taxpayers might get refunds relating to income reported in prior years that, on hindsight, should not have been taxed.
Next, much has been made of trying to structure family offices to try to deduct investment management fees, which generally have been disallowed under 2017 tax reform and really hadn’t been very beneficial before that in light of the 2% floor on miscellaneous itemized deduction and their total disallowance for alternative minimum tax purposes.
Finally, a sale to a spousal irrevocable grantor trust is an alternative to a sale to an irrevocable trust deemed owned by the seller, whether the seller is the grantor or the primary beneficiary. We will discuss the sale to a spousal irrevocable grantor trust and compare it to the other two strategies.
Attendees will learn:
- Generally, how the net operating loss (NOL), basis, at-risk, and passive loss limitations work and relate to each other, including some optionality potentially available in the basis and at-risk areas.
- How these limitations interact with self-employment tax, in light of a 2020 Chief Counsel Advice.
- That a family office that is taxed as a pass-through entity has much more difficulty deducting various expenses than an office taxed as a C corporation (including an unreported 2018 Tax Court order on the former), together with cautions regarding how a C corporation is compensated.
- When allocating profits from an investment partnership to the family office, how proposed income tax regulations governing service partners complicate the design of such a profits interest from a practical cash flow viewpoint as well as a tax viewpoint.
- Transfer tax and income tax consequences of a sale to a spousal irrevocable grantor trust.
Thompson Coburn LLP
Steve is a nationally recognized practitioner in the areas of estate planning and the structuring of privately held businesses. Lawyers, accountants and business owners regularly look to Steve for fresh, highly knowledgeable insights into the best possible tax and estate planning approaches to their transactions.
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