As the tax season progresses for small business owners, I want to remind them to monitor their ‘basis” in their businesses.
Basis is the initial investment, plus any subsequent investments and profits; minus distributions and losses. Owners need to maintain a positive basis amount in their business for tax purposes. It also helps from a banking, investor or financing perspective as well.
If basis is negative, any losses the business experiences cannot be deducted, but all profits are still taxable.