Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 11-27-2011, 04:03 PM
 
Posts: n/a
Business Deductions

January 1, 2011, I purchased 50% of an S-Corporation; thereby creating a two owner S-Corp. I recently discovered that my business partner failed to separate personal expenses from the previous year’s tax returns (nonemployee children on business cell phone plan and on business fuel cards) , and allowed one employee's family (family not employed with Corporation) to obtain cell phones through the Corporation; yet claimed the entire year-to-date cost of the cell phone bill as a business expense. Please advise as to what the repercussions of his actions can bring.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 11-27-2011, 10:49 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
“ I recently discovered that my business partner failed to separate personal expenses from the previous year’s tax returns (nonemployee children on business cell phone plan and on business fuel cards) , and allowed one employee's family (family not employed with Corporation) to obtain cell phones through the Corporation; yet claimed the entire year-to-date cost of the cell phone bill as a business expense.”---->One of the top 10 items that the IRS eyes S corp oversight is commingling business and personal assets. All business assets must be titled in the business name, especially if you are depreciating them. This also includes the s-corporation paying personal bills or expenditures of the owners. The IRS's position is when the s-corporation pays the personal expenses of the owner the owner is taking compensation and not taking a distribution. The difference is self-employment taxes (Social Security and Medicare) are added to compensation. Commingling personal and corporate assets might not be a good idea if you want the legal protection of your corporation too. Commingling assets makes tracing and proving deductions difficult, which makes it easier for the IRS to win audit positions. Therefore, be certain to have business bank and credit card accounts solely for business transactions and have personal bank and credit card accounts for personal transactions. Your partner would include the money in his personal expenses and he would not write the amounts off as expenses of the S corp. Only business related expenses can be deducted from his business income. The limited liability protection of an S corporation will not protect a shareholder from personal liability arising from his own misdeeds. But the corporate status will protect other shareholders from sharing the liability so long as there is no evidence of a fraud sanctioned through the corporate entity. The fact that it is a corporation generally leads to protection of the corporation and its assets from any personal liability of the shareholders and vice versa. If the corporation has been properly operated as a legal business entity completely separate and apart from its owners (the shareholders) personal affairs, with its own bank account, accounting and business records and the like, and if the shareholders have not used it for personal purposes, intermixed business and personal financial dealings through the entity, or to use a common expression, used the business as their personal piggy bank (using corporate funds to pay personal expenses, for example), then the protection described above should prevail in the event of bankruptcy of a shareholder.
“Please advise as to what the repercussions of his actions can bring.”---> As said above.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply



Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
As part of the "Small Business Jobs Act of 2010 Tax Provisions, IRS allows Temporary exclusion of 100% of gain on certain small business stock. TaxGuru General 0 01-31-2011 06:14 PM
tax return business deductions danis Sole-Proprietorship 0 09-04-2010 10:47 PM
What would be deductible business expenses for my new retail business? frankietan Sole-Proprietorship 0 05-05-2008 07:30 PM
How can I take advantage of business losses in my unincorporated business? larry Sole-Proprietorship 1 01-24-2008 06:15 PM
Employee Business Expenses deductions Adam Miscellaneous 1 02-07-2007 10:28 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.