• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

New Tax Rules for Business — Part 4 (S Corporations)

January 26, 2016 / By Barbara Weltman

© Karunaphotography | Dreamstime.com - Woman Working In Office PhotoThe Protecting Americans from Tax Hikes (PATH) Act, which was signed into law on December 18, 2015, extends permanently or temporarily many business-related tax rules. In this blog, I focus on the changes related to S corporations.

Overview

Many small businesses function as S corporations. In fact, there were more than 4.6 million S corporation returns filed for 2014. The PATH Act made a number of favorable changes impacting S corporations.

Built-in gains tax

When a C corporation elects to be taxed as an S corporation and has appreciated assets at that time, the potential gain in those assets (technically called net unrealized built-in gain, or NUBIG) can be taxed to the S corporation. These are called built-in gains. When these assets are sold, the S corporation pays a 35% tax on the built-in gain (the highest corporate tax rate). However, if the S corporation holds the assets long enough, the built-in gains tax does not apply; any gain reaped by the corporation in this instance passes through to shareholders and is taxed at their capital gain rate (zero, 15%, or 20%, depending on the owner’s personal tax bracket).

The built-in gains period originally was 10 years. The period is measured by the length of time that the corporation has S status. Sales of assets with potential built-in gain within 10 years of the S election were subject to the tax at the corporate level. The built-in gains period was reduced to seven years for 2009 and 2010. Starting in 2011, the period was reduced to five years; this shorter period expired at the end of 2014. The PATH Act makes the five-year period permanent. For example, if a C corporation made an S election on January 1, 2012, and owned NUBIG property on that date with potential gain of $10,000, the S corporation won’t pay any tax if the property is held at least until January 1, 2017; the five-year period ends on December 31, 2016.

Donations of appreciated property

Because S corporations are pass-through entities, charitable donations are taken at the shareholder level. In the case of appreciated property, a rule made permanent by the PATH Act lets the corporation claim a deduction based on the property’s value but the shareholders reduce their basis in the corporation by their share of the corporation’s adjusted basis of the property. In other words, the reduction in shareholder basis is less than what they claim as a charitable deduction.

To oversimplify, assume the corporation donates property worth $10,000 that it acquired for $2,000. There is one shareholder, who can deduct $10,000 on her return. She reduces her basis in S corporation stock by $2,000. The small basis reduction will allow her to deduct more losses from the corporation, assuming that the corporation is not profitable in a future year.

Other changes

S corporations are also impacted by various other changes made by the PATH Act. For example, those engaged in research activities may take a payroll tax credit. If they hire new employees from certain targeted groups, they can take the work opportunity credit that are passed through to shareholders. And if they buy certain equipment, they may take certain write-offs that are also passed-through to shareholders.

If your business operates as an S corporation, discuss with your tax advisor which tax breaks you may be eligible for and what actions to take in order to secure them.

Tags Protecting Americans from Tax Hikes (PATH) Act S corporations tax credit tax rules

Primary Sidebar

Categories

  • General Business (506)
  • Guest Blog (115)
  • Homepage (28)
  • Small Business (1,008)
  • SMB Financial (330)
  • SMB Legal (67)
  • SMB Taxes (327)

Barbara’s Recent Posts

  • How to Choose the Right Promotional Product Distributor July 11, 2025
  • Is Christmas in July for Your Small Business? July 10, 2025
  • How to Streamline Recruitment and Selection to Enhance Hiring Results July 9, 2025
  • One Big Beautiful Bill: Checklist of Tax Changes for Small Businesses July 8, 2025
  • What the U.S. Supreme Court Told Small Businesses in This Term: Part 1 July 3, 2025
  • Mid-Year Business Planning for 2025 July 1, 2025
  • 10 Ideas for Coping with Cash Flow Challenges June 26, 2025
  • 5 Insurance Traps to Avoid June 24, 2025
  • Creating a Feng Shui Office Layout for Your Business June 20, 2025
  • Scaling Your Business by Optimizing Social Media Marketing June 19, 2025
  • The Timeless Value of Business Cards in a Digital World June 18, 2025
  • What Does the Latest IRS Data Book Tell Us? June 17, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

5 Best Apps to Help You Delegate Tasks Easily - LifeHack https://bit.ly/4ktlMs8 #smallbusiness #delegate #workplace

Reply on Twitter 1943438117886726437 Retweet on Twitter 1943438117886726437 Like on Twitter 1943438117886726437 1 Twitter 1943438117886726437
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

Motivation vs Discipline: Why One Always Beats the Other (And It's Not What You Think) - LifeHack https://bit.ly/4eCTSIQ #productivity #smallbusiness #motivation

Reply on Twitter 1943384967964229673 Retweet on Twitter 1943384967964229673 Like on Twitter 1943384967964229673 Twitter 1943384967964229673
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

Use These 11 Guidelines to Decide When to Bend the Rules for Employees https://bit.ly/3GEPOeH #workplace #smallbusiness

Reply on Twitter 1943360134333276317 Retweet on Twitter 1943360134333276317 Like on Twitter 1943360134333276317 Twitter 1943360134333276317
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap