I started my s corp in feb 2008. i have spent the year developing software on my spare time, i have a full time W2 job elsewhere. and i also have an older sole prop business for 1099's that i recieve sometimes as a contractor.

1. my s corp has made no money since its still in development stage, (i do no want outside investments).
2. my s corp expence,, (laptop, large screen, server, software, travel, meals,) total about $5k for 2008, no income
3. i transfer personal funds (as loans?) to my s-corp as loans that are used to pay down the credit card balance.
4. my 1099 (sole prop), generates about $5200 per year. after web hosting and, home business, other software related exp, i pay s.e tax on approx $3k.

my questions.
1. for my s corp, im supposed to be paying myself since i work on the software? do i have to? it doesnt logically add up
2. can i pass the entire loss of the s-corp to the shareholder, me? primirally the incorporation fee's that i paid,.?
3. i plan to eventually close down the sole prop and deal with only the s-corp., which is why i am hesitant to leave the laptop exp as the s corp exp., even though i use the same laptop for my sole prop.
4. when forming the s corp, i had setup the shares for the business, on "paper" should i be balaning the books, showing that i paid for the shares? or should i leave the starting line as $0, and show my credit card payments as personal loan transfer from shareholder? so that i can pay myself for that later?

i know i am asking a lot of questios, for that i appologize., should i restate my questions individually as single posts?

Thank you.

Taxguru, i believe i found a part answer
"it is perfectly reasonable not to take a salary when the corporation does not have the wherewithal to pay you a compensation.

The key factor to bear in mind is that there is sufficient basis to deduct the losses in 2007. Hence, you should try and ensure that there is sufficient basis that will offset the losses in 2007. If there is not enough basis, then I would suggest that you increase basis at least to the extent of the losses."

with that in mind, its okay that i take no income., but in order for me to take advantage of the s corp loss, i need to at least equal my basis in the corp?

Let me answer each of your questions as follows:

1."For my s corp, im supposed to be paying myself since i work on the software? do i have to?"
You as an offficer owner of an S Corporation are not required to a take a salary if you do not have the revenue or profit to sustain this salary. So, do not worry if you have not taken a salary.

2. "Can i pass the entire loss of the s-corp to the shareholder, me? primirally the incorporation fee's that i paid?".
Yes, you can pass the entire loss (expenses incurred as the incorporation fees) that is taken on Schedule K-1, through to your individual tax return.

3. I plan to eventually close down the sole prop and deal with only the s-corp., which is why i am hesitant to leave the laptop exp as the s corp exp., even though i use the same laptop for my sole prop.
No impact here, the laptop has Zero basis and you cannot deduct a laptop with zero basis on the tax return of the S corporation. It has already been fully depreciated on the Schedule C.

4. When forming the s corp, i had setup the shares for the business, on "paper" should i be balaning the books, showing that i paid for the shares? or should i leave the starting line as $0, and show my credit card payments as personal loan transfer from shareholder? so that i can pay myself for that later?
Always show the capital amount as the amount that you used to initially form the corporation, that is the incorporation fees. The cost of the incorporation is an asset and is reflected as an Asset under the heading Other Assets on the balance sheet and offset as a Capital invested into the business. This is a better treatment as the loan from officer to start the corporation implies you did not properly capitalize the corporation.

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the s-corp was indeed not properly capitalized. To fix this, i will need to correct the books, to show my proper expense of "incorporation fees".

I will be using turbo tax home and business for personal and turbo tax for corporations for my business.

1. Am i correct to asume that tax programs allow individuals to report the K1? or is that something my scorp prep will generate for me?
2. Under item (3) the laptops zero basis, and the Schedule C, could you please clarify it a bit more? schedule C is on my 1040, correct? and the K1?

maybe i should play with the software a bit more

i shall post my answers here if i get to it before you do.

Thank you for the help.

The S Corporation Tax Return will generate a K-1 for each shareholder so you do not have to create it on the Individual tax return. The K-1 from the S Corporation will have all the special items that need to be input directly into tax program.

What I meant regarding the next point 2), was that did you depreciate your Labtop on your prior year Schedule C? If you did, then, generally speaking, it has been fully depreciated, thus it has what is known as Zero basis and there can be no deduction when you transfer the asset to the S Corporaiton. You cannot claim depreciation in excess of basis!

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