I bought a cargo trailer for $2550. I used it 50% for business. This is the fifth and final year of depreciation and it is the final return for the Chapter S Corporation that I used this trailer for. The current FMV for this trailer is $2000. The trailer will be mine personally after I dissolve the S Corp. How do I show this on my taxes? Are the correct forms 1120S (for the final year of depreciation) and final tax return, 4562 to show the depreciation, and form 4797 to "sell" the property? I cannot seem to figure out the paperwork I need to do to show this process and I cannot seem to figure out If I have an income or loss or wash on the depreciated trailer.

I also have a Ford Explorer used only 3% for this business, purchased for $11,092, FMV $3,763, in its third year of depreciation. It will become mine as well as part of dissolving the S Corp.

THANK you to whomever can help me straighten this out!

#1;aslongas the asset was distributed to yiou then there may be taxable income or depreciation recapture sec 1245 depre recap rule applies. distribution of asset to shareholder/owner of the S corp creates a tax liability aslongas the FMV of the asset exceeds its depreciation, thereby showing a gain you must disclose on your final tax return.

#2; Recording this sale /dispositionof equipment for S corp requires to include Form 4797 with your tax return. You need to report the gross sale price, original cost and accumulated depreciation in Part III, column A on lines 20 through 22 ofForm 4797 for the sale of equipment used more than one year and sold for a gain;
You need to check the box marked Final on page 1, sec H of Form 1120-S. The Final box must also be checked on all Sch K-1s that are issued to the S corp's sh/owner.and you need toprepare the b/s on page 4, Sch L of 1120-S. The beg. Bal of the assets, liabilities and sh’s equity are the ending reported balances from the prior year's tax return. As you file your a final S corp return, the ending balances of all assets, liabilities and equity should be zero. Iaslongas there is any assets have a balance at year-end, distributions of assets or property will need to be made. ALSO you should prepare Sch M-2 on page 4 of 1120-S. you need to report the appropriate information on lines 1 thru 5. Enter all distributions to sh/owneron line 7. The balance at the end of the year on line 8 should be zero..You also need to prepare a final tax return for tyour homestate similar to the return filed with the IRS to remit any franchise tax due to ensure the S corp to be dissolved timely. You should file both the IRS and state final tax returns by the due date. Form 4562 allows you to detail depreciation for your biz capital items. However, as said previously you need to report the accu depre of the equipment on form 4797 part 3 sec 1245 section I mean.





#3;as mentionedabove.

Thanks for your reply. I will work on the 4797. I don't think there will be a gain because the value of the vehicle is so much lower than when it was purchased.

I am dissolving a 4 person Chapter S corp. We had no income or business operations in 2013. We have $620 in total loss (depreciation, taxes and tax software). I am personally taking the three depreciable items with FMV of $1446 for a Gain of $377 after the adjusted basis.

We do not need to fill out the Schedule L nor the M-1.

How do I fill out Schedule M-2 to show a zero balance at the end of the tax year. Our ending balance last year was a negative $1200

And (hopefully) finally how do I fill out the four individual Schedule K-1s? Do I simply pass on the $620 loss according to their percentage of the S Corp like I have in the past? What is confusing me is my taking of the three assets. Thank You!

#1;as the biz is doing a liquidation and the only remaining assets will be distributed to the shareholder as if they were sold for its FMV and then the cash was distributed. So as your S corp sells assets and ceases operations, there are income tax considerations for the s/h owners. The consequences are recorded on both the final corporate tax return and the personal tax returns of the S corp s/h and owners. The irs requires any shareholders receiving assets with depreciated values exceeding fair market to show a gain on federal income tax returns. For example, receiving company equipment with a value of $4k when the fair market value is $1.5k requires shareholders receiving this equipment record the $4k as income. This leads to higher tax liability.
However,shareholders don't have to pay taxes on the sale of corporate assets during a liquidation. This occurs because the assets never enter the possession of the shareholders. The IRS requires company executives to report the sale of the corporation's assets on the company's final tax return at the end of the year.
Depreciation should be calculated up to the sale date. Hence, depreciation calculated for days in the year of sale that assets are owned by the S corp is deductible on the final corporate tax return.
S corp usually , aslongas it has ord gain on final 1120s, report the gain or loss on Form 4797 with the corporation's tax return. The basis and sale proceeds of each asset sold must be separately tracked for reporting in the appropriate section of Form 4797.
Note; however,UNLESS the S corp takes a profit, it doesn’t need to file Form 4797, no Sec 1245 rule applies. Corporation is a business structure that allows its investors to claim earnings and losses on their personal income tax returns. Before you enter losses reported on a K-1 schedule from an S corp into your personal tax return, you must be sure you have enough outside basis as a shareholder to claim the losses. Knowing how to determine your basis and how the current year's increases and decreases affect it will tell you whether you can claim all or part of the losses or whether they are suspended. If your basis is less than your share of the net loss, you can only claim the amount of loss that brings your adjusted basis to zero, I mean your aaa/stock basis in the s corp. even if your s-corp is currently having a loss, you are still allowed to deduct depreciation.






#2;Sch m-2 is not required unless it was a prior C corp; schM-2 does not need to tie to RE. Sch L is b/s per books and Sch M-2 is for analysis of AAA. Although it is common to reconcile the amounts ;most tax software includes it and IRS often looks for it. Your prior year balance should not have been negative. The distribution reduces your basis in AAA/ stock basis, if stock basis is used up, the rest goes to debt basis. When aaa/stock is restored, items that increase basis the increase is applied first to debt, then to stock. adjustment to basis listed as other additions on Sch M-2 is not correct technically. You need to see 1120S instructions ; On the last page, it specifically notes that a distribution in excess of AAA was not reported on M-2.

#3;correct; aslongas the shareholders are allocated an item of S corp loss or deduction, they must first have adequate stock and/or debt basis to claim that loss and/or deduction item. In addition, it is important to remember that, even when theyhave adequate stock and/or debt basis to claim the S corp loss or deduction item, the shareholders must also consider the at-risk and passive activity loss limitations and therefore may not be able to claim the loss and/or deduction item.i guess you cancontact a cpa/an irsea in your local area for professional help for your fed/state returns


Note;you can only deduct losses of the S-Corp against ordinary income to the extent you have basis in the S-Corp. Anything above that is considered a capital loss. It's probably LTCL so it's subject to the $3K per year limit. An S corp, the capital gains pass through separately. To the extent that any S corp losses are deductible by an individual shareholder, you would be available to offset the capital gain income. Non corporate taxpayers can carry forward capital losses in excess of $3K to future years indefinitely, but cannot carry back the loss to prior years.
If you do that and get a negative number for AGI, then you could have a nol First off you want to make sure you really have an NOL. Because a Sub-chapter S corp passes net income, net losses, capital gains and capital losses through to the shareholders each year, no previous year taxable net income exists to offset at the corporation level. However, a shareholder might be able to use a NOL carryback on his personal income tax return.as you are closing down the S-Corp, then that could easily be the case. If you do you can either carry the loss back to prior years to offset income in those years and potentially be eligible for a refund. Or you can carry it forward if you think you'll be having income in 2010 and beyond to reduce your tax in future years. However, you are NOT subject to Sec 1245 recap rule as long as you have losses. Deducting depreciation is really not an option. What is an option is the method you choose for computing it. Not only are you allowed to calculate the loss to a S-Corp you are required to do so (use it or lose it). A loss will always be subject to basis. In other words, an S-corp shareholder cannot deduct losses that exceed basis in the stock/loan.,

Thanks again. I had no idea dissolving would be so confusing. I am sure there are many people from small Chapter S Corporations in the same situation given the downturn we have gone through and the rising costs of all of our fees, taxes, etc etc. Thanks for your help.