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Old 01-25-2015, 09:05 AM
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Exclamation S-Corp CPA Challenge

I am in military and have an S-Corp in Texas that puts on events. In 2014 we had one event in Texas and it lost plenty of money. We had revenue totaling $15k and expenses totaling over $22k. I am using TurboTax Business 2014 to get everything ready for a CPA to audit before I file (to save any money I can at this point). Fortunately, I kept fairly good records of receipts, expenses, and mileage. However, there is a set of questions below I do not know how to answer using TurboTax. Can you help fill in the blanks?

CPA Questions

1. I paid speakers under $600 to speak at my conference, do they need 1099-Misc? If not, how do I classify the expense?
-- I currently have them classified at Legal/Professional fees

2. I purchased some audio/visual equipment (projectors, speakers etc.) on Amazon totaling over $3k. Do I have to depreciate this over time or can I deduct it all this year… as I have no profit.

3. I currently have this classified under supplies and have depreciated the computer expense.

4. I took out funds from main bank business bank account, but each time was for a specific business reason I needed cash for. How do I explain this, do I just need a log for why each withdraw was made, in case of an audit?

5. On this note, I took no distributions and did not have the income to pay myself a salary. Is this a problem? Should I find a way to re-classify a withdraw as salary instead of an business expense?

6. Half of my deductions are from my personal account. Should I write up a loan agreement with the business for these expenses or can I just deduct them as normal classifying it as equity to the company.

7. One of the larger withdraws was to refund me for a computer purchase I made on my personal credit card specifically for the business. The withdraw did not cover the total bill for the computer, so can I assume the remaining amount could be part of the #6 question loan?

8. I took several trips that were 100% business related in my personal leased car. How do I deduct this expense? I would rather take the GSA per diem for my food expenses during these trips. Each location was the max GSA per diem amount of $71/day. TurboTax is telling me to cut my total food expenses in half, do I need to do this if I am using per diem instead? The 100% option is telling me it more for "company picnic" type expenses.

9. The conference had a VIP dinner that I paid Panera bread around $500 to cater. I have the receipts but am not sure how to classify the expense. Would this be in the "company picnic" type area?

10. My joint-venture partner needed $1000.00 to pay his rent before the conference. I told him it would have to be classified outside our joint-venture as a “consulting fee.” I am doing a 1099-Misc on and sending it to him. Is this right? Per our agreement, we would only share in profits (if any) and not share losses, that was on me. I am the only person with shares to the S-Corp.

11. I have two missing receipts for items over $75. One at Office Depot and one at a hotel. I have the statements showing the expense. Will the IRS not allow me to deduct this?

Any help is much appreciated! Also, if you happen to know any references IRS publications to answers above, you and I will officially be friends.

-SSgt. Just-In Texas



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Old 01-26-2015, 12:02 PM
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1. I paid speakers under $600 to speak at my conference, do they need 1099-Misc? If not, how do I classify the expense?
-- I currently have them classified at Legal/Professional fees=========>>>>>>>>>no;not necessarily. Form 1099-Misc is used for payments to independent contractors,which the speaker probably is. But no reporting is required if you pay any such independent contractor under $600 per year. You mat report the expense as Legal/Professional fees on Line 19. Other Deductions.

2. I purchased some audio/visual equipment (projectors, speakers etc.) on Amazon totaling over $3k. Do I have to depreciate this over time or can I deduct it all this year… as I have no profit.==========>>>>>>>>>> to be eligible for the Section 179 deduction, the asset must be used at least 50% for business in the first year it is placed in service. unless yo have no taxable profit you need to depreciate /carry overover time; sec179 expenses passed through via K-1s from S-corps on1120S are limited at the 1040 level to the one maximum amount aslongas you have taxable income. Section 179 cannot be used to reduce taxable income below zero. However, this isn't always based on the business income alone.

3. I currently have this classified under supplies and have depreciated the computer expense.==========>>>>>>>>>>instead of applying sec 179, yes you can depreciate it under macrs depreciation rule.

4. I took out funds from main bank business bank account, but each time was for a specific business reason I needed cash for. How do I explain this, do I just need a log for why each withdraw was made, in case of an audit?=====>>unlike sole owner ina sole ownership, as the S corp Corporate officer/employee, yoyu do not get draws. You need to be on payroll, as an employee.Owners of S corps should be particularly cautious about taking money out as dividends or in other ways that avoidf fica taxes. The IRS had previously issued a warning about owners of S corps declaring cash distributions and payments of personal expenses to reduce taxes, or of taking out loans in lieu of wages.


5. On this note, I took no distributions and did not have the income to pay myself a salary. Is this a problem?==>>it depends; aslongas the S corp takes losses, no need to pay wages/saalries to employees/ owners. TAx law establishes that any officer of a corp, including S corps, is an employee of the corp for federal employment tax purposes. S corps should not attempt to avoid paying employment taxes by having their officers treat their compensation as cash distributions, payments of personal expenses, and/or loans rather than as wages. In general, an S corp must pay reasonable employee compensation (subject to employment taxes) to a shareholder-employee in return for the services the employee provides before a distribution

Should I find a way to re-classify a withdraw as salary instead of an business expense?========>>>>>>>>aslongas you get paid, your salary’d be reported on w2 and would be deducted as wages expesnes on 1120s by the S corp.

6. Half of my deductions are from my personal account. Should I write up a loan agreement with the business for these expenses or can I just deduct them as normal classifying it as equity to the company. ========>>>>>>>>>>>>>>>correct. documentation would seem to be common sense. An S-Corp is a separate legal entity, and any transactions between shareholder and the corporation have to be treated as such.Interest you pay on business loans is usually a currently deductible business expense. It makes no difference whether you pay the interest on a bank loan, personal loan, credit card, line of credit, car loan, or real estate mortgage.for example, any funds contributed by the shareholder are either capital contributions or loans from the shareholder. If the corp pays personal expenses for the convenience of the shareholder, the payment has to be reclassified as a loan from shareholder repayment or a distribution.

7. One of the larger withdraws was to refund me for a computer purchase I made on my personal credit card specifically for the business. The withdraw did not cover the total bill for the computer, so can I assume the remaining amount could be part of the #6 question loan?=====>>>>>>>>you can not to refund you for the computer purchase for the S corp;as mentioned, most new business equipment can be either depreciated over its useful life or expensed immediately under Internal Revenue Code Section 179. You, not the S corp under sec 179, can write off a whole computer system, including bundled software, in the first year if the total cost is less than $18kn aslongas the S corp has profits passed thru sharehoklders by wayof Sch K1 of 1120S. Each 1040, whether Single or Joint, is limited to one maximum. 179 expenses passed through via K-1s from S-corps (1120S) are limited at the 1040 level to the one maximum amount. A C corp, not AS corp, is able to deduct its own 179 expenses in addition to what is claimed on the 1040s of the owners. This is one of the many ways in which C corps can save thousands of dollars in taxes over S corps.

8. I took several trips that were 100% business related in my personal leased car. How do I deduct this expense? I would rather take the GSA per diem for my food expenses during these trips. Each location was the max GSA per diem amount of $71/day. TurboTax is telling me to cut my total food expenses in half, do I need to do this if I am using per diem instead? The 100% option is telling me it more for "company picnic" type expenses. ======>>>>>>>in general, auto expenses of S-corp shareholders are deductible by the S-corp when the vehicle is titled in the S-corp’s name. However, if the vehicle is titled in your name, the S-corp reimburses you for a portion of your business-related automobile expenses. The S-corp takes an expense deduction for the reimbursement. the IRS does allow you to deduct most of the cost minus an inclusion amount, or you can deduct your vehicle's cost using the standard mileage rate method / the actual expense method. The IRS recommends you calculate your deduction under each method, and use the result that generates the greatest tax benefit. if you choose the standard mileage rate, you must continue to use for your entire lease term. .so you need to keep detailed records of car usage. . The IRS requires businesses to submit supporting documents, like receipts and lease statements when deducting business-related expenses. Vehicles used exclusively for business can deduct the full amount of lease payments less the inclusion amount, or percentage of the car's fmv multiplied by the percentage of business use for the year. If your vehicle is used for both personal and business purposes, you can deduct some of your business mileage costs.



9. The conference had a VIP dinner that I paid Panera bread around $500 to cater. I have the receipts but am not sure how to classify the expense. Would this be in the "company picnic" type area?========>>>>>>>>>not that I know of; S corp may deduct its ordinary and necessary expenses for entertainment; To claim the deduct ion, the corporat ion must main tain
detailed records document ing the nature and amount of these expenses. In gener a l, an S corp may deduct 50% of its business meal and
enter tainment expenses.

10. My joint-venture partner needed $1000.00 to pay his rent before the conference. I told him it would have to be classified outside our joint-venture as a “consulting fee.” I am doing a 1099-Misc on and sending it to him. Is this right? Per our agreement, we would only share in profits (if any) and not share losses, that was on me. I am the only person with shares to the S-Corp.=========>>>>>>>>>>then he I guess needs to issue 1099misc by reporting $1k in box 1 as rent expense.

11. I have two missing receipts for items over $75. One at Office Depot and one at a hotel. I have the statements showing the expense. Will the IRS not allow me to deduct this?=======>>>>>>>yes they’d as you have the evidence, statements showing the expense.



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Old 01-26-2015, 12:31 PM
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Smile

WoW! You sir/ma'am have been a ton of help on this! Thank you much!



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Old 07-05-2017, 12:46 PM
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I disagree

I'm coming into the game pretty late here, but I have to post in case someone researching a related question finds this thread and wants to use the information within to determine their tax treatment of similar issues.

#1-3: I agree with Wnhough's answers.
#4: I think Wnhough misunderstood the question. The way I interpret it, these withdrawals were made to pay for business expenses that, for one reason or another, were transacted with cash. If that is the case, then you will need receipts or expense records to substantiate where the cash was spent in order to deduct the expense. In other words, these withdrawals will not be listed on your tax return as "cash withdrawals." They will be recorded and deducted according to the expense they paid. (For example, a $500 withdrawal might be reported with $300 in the outside services category, $125 in the office supplies category, and $75 in the meals & entertainment category.)
#5-6: I mostly agree with Wnhough's answers.
#7: I'm not going to touch this one other than to say that the answer depends on the amounts in question. If you bought a $500 computer, the answer is different than if you bought a $1200 computer. If the computer is exclusively for business use, then it is the company's expense and any unreimbursed portion of the expense should be booked as a loan from shareholder, as you suggested.

#8-9: I agree with Wnhough's answers.

#10: This is totally incorrect. A Form 1099-MISC is filed to provide recipient information regarding business expenses paid. The rents category (box 1) is where you report your rental payments if your business rents property, such as equipment, cars or real estate.

The business does not rent your partner's residence, neither from him nor for his benefit, and the business will not be taking a deduction for this expense in the rents paid category of its tax return. Box 1 is only to be issued to the lessor of a property or equipment by the business when it is the lessee.

You refer to the business as a "joint venture" but then state that your partner owns no shares of the business. If you are the 100% shareholder in the business, how was your partner going to be paid? S-Corp profits are required to be distributed according to percentage of ownership.

If you were to pay him via a regular salary, this transaction could be called a salary advance.

If you intended to compensate him as an independent contractor, then it could be designated as a consulting fee, or a prepayment/deposit on services to be rendered. In this case, the $1000 would need to be reported to him on a Form 1099-MISC using box 7, for non-employee compensation. Note: be cautious that you don't issue a form 1099-MISC with an amount in box 7 to either a shareholder or an employee of the company.)

In any case, the money you gave your partner to to pay his rent is reportable income for him, and he'll owe self-employment taxes (15.3%) on the amount, which he will need to report on a Schedule C.

11. Most likely the statements would be deemed acceptable by a revenue agent in an audit, especially if there are only 2 receipts missing for the entire tax year.



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Old 07-06-2017, 12:12 AM
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Quote:
Originally Posted by CAErinB View Post
I'm coming into the game pretty late here, but I have to post in case someone researching a related question finds this thread and wants to use the information within to determine their tax treatment of similar issues.

#1-3: I agree with Wnhough's answers.
#4: I think Wnhough misunderstood the question. The way I interpret it, these withdrawals were made to pay for business expenses that, for one reason or another, were transacted with cash. If that is the case, then you will need receipts or expense records to substantiate where the cash was spent in order to deduct the expense. In other words, these withdrawals will not be listed on your tax return as "cash withdrawals." They will be recorded and deducted according to the expense they paid. (For example, a $500 withdrawal might be reported with $300 in the outside services category, $125 in the office supplies category, and $75 in the meals & entertainment category.)
#5-6: I mostly agree with Wnhough's answers.
#7: I'm not going to touch this one other than to say that the answer depends on the amounts in question. If you bought a $500 computer, the answer is different than if you bought a $1200 computer. If the computer is exclusively for business use, then it is the company's expense and any unreimbursed portion of the expense should be booked as a loan from shareholder, as you suggested.

#8-9: I agree with Wnhough's answers.

#10: This is totally incorrect. A Form 1099-MISC is filed to provide recipient information regarding business expenses paid. The rents category (box 1) is where you report your rental payments if your business rents property, such as equipment, cars or real estate.

The business does not rent your partner's residence, neither from him nor for his benefit, and the business will not be taking a deduction for this expense in the rents paid category of its tax return. Box 1 is only to be issued to the lessor of a property or equipment by the business when it is the lessee.

You refer to the business as a "joint venture" but then state that your partner owns no shares of the business. If you are the 100% shareholder in the business, how was your partner going to be paid? S-Corp profits are required to be distributed according to percentage of ownership.

If you were to pay him via a regular salary, this transaction could be called a salary advance.

If you intended to compensate him as an independent contractor, then it could be designated as a consulting fee, or a prepayment/deposit on services to be rendered. In this case, the $1000 would need to be reported to him on a Form 1099-MISC using box 7, for non-employee compensation. Note: be cautious that you don't issue a form 1099-MISC with an amount in box 7 to either a shareholder or an employee of the company.)

In any case, the money you gave your partner to to pay his rent is reportable income for him, and he'll owe self-employment taxes (15.3%) on the amount, which he will need to report on a Schedule C.

11. Most likely the statements would be deemed acceptable by a revenue agent in an audit, especially if there are only 2 receipts missing for the entire tax year.
correct i agree with CAErinB's considerable comment on #10


"You refer to the business as a "joint venture" but then state that your partner owns no shares of the business. If you are the 100% shareholder in the business, how was your partner going to be paid? S-Corp profits are required to be distributed according to percentage of ownership.

If you were to pay him via a regular salary, this transaction could be called a salary advance.

If you intended to compensate him as an independent contractor, then it could be designated as a consulting fee, or a prepayment/deposit on services to be rendered. In this case, the $1000 would need to be reported to him on a Form 1099-MISC using box 7, for non-employee compensation. Note: be cautious that you don't issue a form 1099-MISC with an amount in box 7 to either a shareholder or an employee of the company.) "=======>>coo comment



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