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Tax Elections for Small-Business Owners


While many tax rules are automatic, there are a number of instances in which owners can choose their tax treatment. Here's a listing of some elections available, the advantages and disadvantages to making them, and when they have to be made:

Description of options Pros and cons When to make the election
S corporation status (instead of a C corporation) Pro: Pass-through tax treatment eliminates double taxation.
Con: Cannot take advantage of many fringe benefits
For current-year election: within two and a half months of start of year
For next-year election: any time within the current year
Expensing of business equipment (up to $19,000 in 1999) (in lieu of depreciation) Pro: Immediate deduction for entire cost (up to dollar limit)
Con: May not have sufficient income to use expensing
Due date of tax return for year in which equipment is placed in service (including extensions)
Amortization (AMT) of business start-up expenses over 60 months or more (instead of recovering capitalized costs upon a future sale) Pro: Deductions for costs over five years.
Con: None
Due date of tax return for first year of business (including extensions); corrective election on amended return filed within six months of original due date (plus extensions)
Waiver of net operating loss (NOL) carryback (in favor of only carrying the loss forward) Pro: May gain greater tax benefit in future years (if future tax bracket is higher)
Con: Lose out on immediate tax refund
Due date of tax return for the year in which the NOL arises (including extensions)
Figure depreciation of tangible personal property for AMT purposes using 150% over the regular tax recovery periods (instead of using longer AMT class lives)* Pro: Eliminates any AMT adjustment (and related record keeping)
Con: Smaller depreciation write-offs
Due date of tax return for year in which property is placed in service (including extensions)

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Last updated: Jun 1, 1999


Barbara Weltman is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser?s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row.

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