No business owner wants to lose money. But, if it happens this year, there may be a silver lining — a tax break that enables the owner to recoup taxes paid in prior years. This is called a net operating loss (NOL) carryback, and Congress made things better for owners with losses in 2009.

Small business owners with net operating losses this year will be able to elect a three, four or five year carryback instead of the usual two year NOL carryback; the carryback offsets income in prior years to generate a tax refund for the owner now. This means potentially recouping taxes paid and receiving an immediate infusion of cash that can be used now to keep the business going.

Who is Eligible
The new rule applies only to “small businesses,” defined as businesses with average annual gross receipts of $15 million or less in the prior three years.

The New Carryback Period
Usually, the NOL carryback is limited to the two prior years. But, the American Recovery and Reinvestment Act of 2009 allows eligible businesses to opt for a three, four, or five year carryback for NOLs arising in 2009.

The Tip
Meet with your tax advisor as soon as possible to assess whether and to what extent you may want to use a longer NOL carryback period. If it makes sense, a refund request can be filed as soon as possible after the close of this year. This is done using a tentative refund application or by filing amended returns for the carryback years. Amending a prior tax return may trigger a tax refund for you and a rapid infusion of cash to start 2010.

There is still time to give to charity and claim a tax deduction for 2009. Cash donations by check are deductible this year if mailed before the end of the year. Donations charged to a credit card before January 1st are also deductible this year, even though you pay the credit card bill in 2010.

When making charitable donations, keep these tips in mind:

• Check that the organization is a qualified charity. Only donations to qualified organizations are deductible.
• For all donations of property, including clothing and household items, obtain a receipt from the charity that includes the name of the organization, the date of the contribution and a reasonably detailed description of the donated property.
• If the amount of your deduction for all non-cash donations is over $500, a completed Form 8283 must be submitted with your 2009 tax return.
• Property valued at more than $5,000 requires a written appraisal confirming its fair market value.
• A new provision in tax laws allows taxpayers over age 70-and-a-half to transfer tax-free up to $100,000 per year to an eligible charity from his or her individual IRA.
• Gifts of Securities: Taxpayers who wish to make gifts to charities may consider selling loser stocks, giving away the resulting cash and then claiming the capital loss and the charitable deduction on their returns. Alternatively, taxpayers may consider giving away appreciated stock, avoiding the tax on capital gains while deducting the fair market value of the stock contributed.

The Tip Time is short, so round up your charitable donations and make them before the ball drops on January 1st.

The Recovery Act increased the monthly exclusion for employer-provided transit and vanpool benefits from $120 to $230 for March 1, 2009 through December 31, 2010. After 2010, the amounts will be adjusted for inflation.

If you currently pay more than $120 per month in qualified transportation costs, you may now increase your contribution to a pretax transportation account up to $230 per month. If you are not currently taking advantage of this benefit, now is a great time to start.

If your business is organized as a Limited Liability Company (LLC), you may have the option of choosing how you want the company taxed by the IRS. This means that you may choose to have your LLC taxed as a partnership, corporation or disregarded entity at the time of formation or at a later date.

If you choose to make the election at a later date, the default tax status of an LLC will be that of a partnership. Should you want to change it after formation, you must file an Entity Classification Election (Form 8882) by March 15th for the election to be retroactive to January 1st. If the election is made anytime after March 15th, the new status will be effective as of the filing date of the election form.

Two complications arise if you make the election after March 15th:

1. Reasonable cause explanation. You must explain to the IRS why you did not file the election on time. This is normally not much of a factor, if you can articulate, in writing to the IRS, a “reasonable cause” for not filing on time.
2. Short-year tax return. If the timing of your election is not retroactive to January 1st, you will have to file two tax returns: one for the partnership until the effective date of the filing and one for the new tax entity for the remainder of the year. The necessity of filing “short-year” tax returns raises the complexity of allocating profits and losses throughout the year and will consequently raise the cost of accounting and tax return preparation.

The Tip
Are you considering changing the taxable classification of your LLC? If so, plan on filing the election by March 15th. Even better – file the election now to be effective as of January 1, 2010 and you won’t have to worry about it again.

This tip does not include the reasons you may want to change your taxable classification. We will touch on that in a later tip.

For most individual taxpayers, tax day comes just once a year — on April 15. But for many businesses and self-employed taxpayers, Uncle Sam expects a check four times a year.

Who pays
Unfortunately, you are one of those poor quarterly taxpayers if you are a sole proprietor, partnership or S corp and any of the following applies to your situation:

• You expect to owe at least $1,000 in tax at the end of the tax year; or
• You expect your withholding to be less than:
  1. 90% of your tax this year, or
  2. 100% of your tax last year

Essentially, if you think you will owe over $1,000 in tax, be prepared to calculate and make estimate tax payments.

If your business is a C corporation, you must make estimated tax payments if you expect to owe more than $500 in tax at the end of the year.

When payments are due
Estimated tax payments are due on April 15, June 15, September 15 and January 15. If you underpay one or more installments, you get charged interest until the day you catch up.

How much to pay
Unfortunately, there isn’t an easy answer to this question. The official answer is you must calculate your expected AGI, taxable income, taxes, deductions, and credits for the year, then use Form 1040-ES to figure your estimated tax.

To simplify things, you can withhold 100% of the tax you paid last year and make payments of 1/4 of that amount each quarter, instead of trying to estimate how much your tax burden will be this year.

The Tip
If you haven’t done so already, calculate your estimated tax payment for January. January 15th will sneak up on you faster than you expect, so it’s best to have this task taken care of early.

I’ve tried to be brief, but the rules are complex. So, anyone wanting more information should download IRS Publication 505 or IRS Publication 542 for corporations from the IRS website.