HOW TO WRITE OFF YOUR COMPANY'S LOSS ON YOUR TAX RETURN
Suffering a loss in your corporation -- whether a C corporation or an S corporation -- is bad enough. Not being able to deduct that loss is doubly painful.

Here's how the law normally puts you into an economic tax trap. If you own a C corporation, you cannot deduct your company's losses on your return. The losses belong to the company and can only be offset against company income.

What if you are an S corporation? It's different. Your company's losses pass through to you and are deductible on your return. But there may be a problem if there are other shareholders -- your children, for example. You can only deduct your share of the company's losses. Of course, your children also can write off their share. Sorry, but in their low tax bracket, the losses offer little or no tax savings. The tax savings would be better if you could deduct the entire loss on your personal return.

An ingenious business owner found a way to escape the tax trap. He entered into a simple, yet unique compensation arrangement with his company that gives him big bonuses when the company has a good year. However, in a down year, he agrees to reimburse the company fully for its losses.

The Tax Court ruled that this kind of arrangement gives our company-owner tax hero a deduction for the amount of the reimbursement [See DeLorean, T.C. Memo 1995-287]. The wonderful tax result: If your company is a C corporation, you move your company's losses to your return. If your company is an S corporation, you shift the losses of all shareholders to your return.

Want to learn more tax-saving techniques that enrich you instead of the IRS? Read the companion Special Reports written especially for readers of this column, titled: (1) How to TAKE MONEY OUT of Your Closely Held Corporation; (2) The 25 BEST TAX-SAVING IDEAS of the '90s and (3) Your Business...America's BEST TAX SHELTER -- $27 each, $45 for any two or $59 for all three. Write to Book Division, Blackman Kallick Bartelstein, LLP, 300 South Riverside Plaza, Chicago, IL 60606.

For more information, write to Book Division, Blackman Kallick Bartelstein, LLP, 300 South Riverside Plaza, Chicago, IL 60606.