In business, some are making a profit while some are generating tax losses.
Generating tax losses isn’t the end of the world if the business and its owners have basis to deduct those losses. Having basis means that it’s your money that funded the tax loss, as opposed to the bank’s money or another third party lender’s capital.
We had to get creative in order to help one of our clients who was experiencing both taxable profits and taxable losses in different businesses he owned.
Our client owned a transportation company that consisted of several entities. The entity that owned the trucks was generating huge tax losses due to depreciation rules. Other entities in the business were generating significant operating and taxable income.
After careful analysis, our team restructured terms in the trucking agreement to shift income from entities making lots of taxable income to entities that had a big tax loss.
By doing this we saved our client $1 million dollars in tax over the last six years.
The business was still making the same amount of money across each entity, but they were now saving significantly more on taxes each year due to a simple restructure in terms and good documentation of the economics between the companies.