February '18

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rv-pro.com February 2018 • RV PRO • 197 Owners of unincorporated businesses who are forced to sell or liquidate their businesses at a loss are allowed to deduct those losses against their ordinary income. Owners of incorporated RV businesses who sell or liquidate their operation at a loss are required to deduct those losses against their capital gains. If their capital losses exceed their capital gains, they are allowed to divide the loss into increments of up to $3,000 per year and deduct that amount against their ordinary income. At that rate, depending on the amount of the capital loss, it may be many years before the entire loss is deducted. Losing the Loss Deduction Whether as a result of economic conditions, competition, or factors outside the control of the RV business professional, every RV business is at risk of losses. Under our present tax rules, any loss sustained during the taxable year or a loss not covered or "made good" by insurance or the government, can be claimed as a tax deduction. Would a refund on taxes paid by the formerly profitable RV business in years past help ease the pain of lingering losses this year? What if last year's business losses could offset next year's profits and reduce the tax bill for years to come? All this, and more, is possible with "loss" planning. Too Much Loss A number of unfortunate business owners, particularly those whose businesses operate as a pass-through entity, have discovered that there can be such a thing as too much loss. Under the tax rules, a partner or S corporation shareholder cannot take a loss in excess of the amount invested in the RV business. For S corporations, a shareholder's "basis" includes equity investments as well as direct loans to the business. That basis is increased by profits and reduced by losses and distributions. Once the basis is reduced to zero, additional losses are suspended. The answers to question about the complex and, often con- fusing, casualty loss tax rules can be found in the IRS Publication 547, Casualties, Disasters and Thefts: www.irs.gov/pub/irs-pdf/ p547.pdf Unfortunately, recoveries via tax law are not always smooth, often requiring professional assistance or, at the very least, an understanding of how the tax rules work. Could your RV business profit from its losses?

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