Tax Elections for Small-Business Owners, Tax Strategies Article

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)

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)