OldJack

>>working interest payments in the royalty box. << The royalty box was the method of reporting for many, many, years until the IRS made such a fuss about it a few years ago. Most of my clients had very small numbers to report under either method and the result didn't have much, if any, change in the 1040 tax. Amending those prior returns would result in all the owners having to file amended 1040 returns for little if any change in tax. YOU would be very unpopular with everyone! And, its not really your responsibility to amend those returns since you did not prepare them, so why not advice the client of any future problems it might cause and let that dead dog lie.

It would appear to me that this S-corp is not dealing with real estate in the sense of a passive activity so I would agree with the manner the profit is shown on the 1040 Sch-E. A licensed professional is allowed to provide professional services to an owned corporation and receive a 1099Misc for such services. Services provide to administer corporate activities should be as an employee reported on a W2, however, there is no requirement that a shareholder/officer must take a salary for such services. Of course, on IRS audit, other payments could be reclassified as salary so that is a risk the shareholder takes. It is not the responsibility of a current tax preparer to reclassify distributions to salary or to amend prior tax returns for prior decisions of this type.

>>he hasn't given me a business reason to reduce his salary<< Would a performance review showing dissatisfaction with his decisions and lack of company profits work for you?

This forum has gone to the dogs!

Well... some of those distributions might be justified as earnings/profits from prior years that had not yet paid-out.

As I understand it, if the taxpayer is required to take a distribution before April 1, 2009 based on the balance of the account at 12/31/2007, the payment is still required by April 1, 2009. This would only be for those taking their first distribution because of reaching the required age. It is the distribution that is based on the balance of the account at 12/31/2008 that is not required to be paid in 2009. The 2010 distribution would be based on the balance of the account as of 12/31/2009.

There is no easy or correct answer based on the information provided. S-corp officer wages could depend upon several factors considering the work and labor involved. I would first consider the question is this a service business a 100% service business provided the customer by the S-corp officer? If so 100% of the annual earnings could be considered taxable as wages. On the other hand, the officer shareholder has a right to "expect" a reasonable profit from his investment of capital in the corporation and as such has a right to fire or set the wages of all employees including himself. Note that if there are zero payments of any kind to a working shareholder the IRS has no authority to force a wage to be paid to the officer. The IRS only has authority to reclassify S-corp payments as officer wages. Why would we care how the IRS feels.

I fill-in the balance sheet on EVERY corporation tax return regardless of small amounts. I will not sign a corporate tax return without a page 4 balance sheet. A corporation is required to maintain proper bookkeeping and filing the actual results shows that the business is doing that. Reporting the balance sheet on the tax return could get you a pass on IRS initial review of the tax return and avoid selection for audit. I would NEVER prepare a corporate tax return without an accurate balance sheet in my workpapers. I have always attached additional information to all tax returns and I believe the results has been years of no IRS audits.

>>but you're right that in this instance it would make no difference. << Unless you are talking about the delay in posting (mailing delay) EFTPS would make no difference even if making multiple payments. Just because there are 1040ES coupons that say 1st, 2nd, 3rd, and 4th quarter doesn't mean anything to the IRS. You could use the 4th quarter estimate coupon (or any quarter coupon) as many times as you like as the payments are credited to the taxpayer's account as of the date received by the IRS.

I do not consider this post as spam! The post is not selling anything and is offering tax professionals a look at software with no strings attached. I think the post should stay.

Well... I don't see any problem calculating a deduction since the number of business miles must have been determined in order to add gross income to the W2. It should not be difficult to also determine the average gallons of gas that was used to drive the number of business miles (since the auto maker has published a MPG rate for that auto) and what the average price per gallon of gas has been in that particular area. Thus it is simply a math calculation to determine a deduction. True that the Cohan rule (estimated amount) doesn't apply to travel or entertainment expenses, listed property, or business gift, but I would probably claim the deduction as reasonable, ordinary, and necessary business expense. I doubt the deduction makes much savings in tax and I agree that actual cost or reimbursement should be used in future years. I don't know if it makes a difference but Reg 1.162-17(d)(3) refers to incidental travel expenses allow a reasonable approximation for deduction. I don't know if one could claim mileage or fuel is an "incidental travel expense".

It is earned income that qualifies. W2 income has always been taxable and counted as earned income when actually paid and not when work performed.

One should not procrastinate and get those reports filed prior to the deadline.

Well said!!

Or, Acquisition cost $1,000- accumulated depreciation $600 = adjusted basis $400 Adjusted basis $400 - liabilities "assumed" $900 = $500 capital/owner contribution (xxxdistribution (Draw) amountxxx). example: $ 900 debit liability account $ 600 debit accum depr. $1000 credit acquisition cost $ 500 credit owner capital account

>>he can be a $1 a year employee << I agree! If the big 3 motor company executives can get away with only taking $1 salary so should anyone else. However, I have clients that are showing $1,000 gross taxable on their W2. Actually, if the first year S-corp is NOT reporting a profit he would not have to take a salary as was pointed out he would just be taking back some of his investment.

Assuming this entity is truly taxed as a partnership rather than as a S-corp. Generally, partners may take/withdraw equipment as a property distribution at the book value of the equipment which becomes the partner's tax basis for future use, depreciation, or sale (unless they had contributed the equipment personally in the first place, then the tax basis may be different). Its just the reverse of putting personally owned equipment into a partnership. Therefore, there is no taxable sale to report and no partnership taxable gain or loss to pass to the individual owners. I have in the past reported the "withdrawal" on form 4797 with sale price and cost the same just to document that the asset disappeared from the books. One way to treat the liability accounts would be to remove them as a credit to the capital contribution account for each partner in the partnership. None of this would be true if the entity is taxed as a S-corp which requires the transaction to be a taxable sale at fair market value.

>>another tax preparer has suggested treating this as a reimbursable expense<< I don't think there is any way this employee can avoid this income as rent income on 1040 Sch-E. And, like Jainen said rent income from an employer would disqualify her from claiming reimbursement, any home expenses, or OIH deduction. The employer is risking that on audit he could be subject to payroll taxes and penalties if the IRS reclassifies the payments as taxable employee benefits. >>Code 280A( c)(6): Treatment of rental to employer Paragraphs (1) and (3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer. <<

Yes, it is any line item on the return manager where you open the line item. A line item contains only one "signature" return such as a form 1040, 1099's, 1120S, etc. However, forms attached to the return manager line item do not count against you such as an extension form attached with a client form 1040. In other words you pay to add each line on the return manager. As far as I know efile has nothing to do with the price and is included. You purchase blocks of returns from the ATX website which gives you a code number to enter into the software that authorizes you to add lines to the return manager.

Keep in mind that the net of form 8825 does not appear on page 1 of the 1120S and limitations on losses may apply. Land should be allocated at Fair Market Value first. There may have been an independent appraisal done by the seller before placing on the market. Real Estate tax system for that area may have a FMV assessment. Then deal with the balance of the purchase price by allocating the total purchase price (less land) to the percent of FMV of each item as to the total/gross FMV (less land) of allocated items. In other words after subtracting out land cost (based on FMV) determine each item's FMV as a percent of total FMV (not counting land FMV) and multiply that resulting item percent by the balance of the purchase price to determine cost allocated for that item. If the owners are not taking distributions or any other payments during a year from the S-corp they need not take a salary as it is those payments that the IRS has authority to reclassify. The IRS does not have authority otherwise to demand a S-corp shareholder take a salary. edit: there are those that would not separate FMV land first, but would include it as the same as any other item in the allocation. I could argue that as being correct also.

Even though you know there is no lawsuit in the first year as you prepare the first year tax return, it is wise to file a separate schedule for the LLC to show/prove that you have separated the LLC business from your personal business from the very beginning. What better proof could one have than to show the LLC was a separate entity in business operation from the start and thereby provide personal protection? IMHO to file only one form for the startup year is malpractice begging for the client to sue you if he loses a lawsuit because of the LLC being ignored in court.

What has been said is mostly true for federal income tax purposes, but you should not overlook the purpose you are setting up a legal LLC entity. If the LLC is sued one, of the first things looked at in court is did the owner treat the LLC as a separate entity. If I were challenging the LLC entity protection I would ask to see the books and TAX RETURN for the LLC. Therefore, in my opinion, the single member LLC should file a separate tax form attached to the 1040 be it a sch-E, sch-F, or sch-C. I would allocate the years depreciation for each schedule based on the date of transfer of assets to the LLC. And yes, you must legally transfer the assets (whatever that takes) if you want them protected by the LLC entity. You can't just ignore the LLC entity and expect to have the LLC protection!!

>>Does that let you actually see the journal entries << You see all the transactions in whatever account you are exporting therefore, the journal entry for an account is just another transaction. However, you do not see all the debits and credits of journal entries together as such. Its the same as a detail general ledger printout but in an Excel spreadsheet.

What Slappy Tax said. Also, I have one client that converts all his Quickbook data for the year to a Excel file and emails or CD's it to me for a special report required by a state contract. It is in the same format as a detail general ledger with all transactions per selected accounts. I can then audit, format the printout, and change anything in my Excel program. edit: Quickbooks is great for dummy's but a nightmare for professional accountants. Its a cheap little overpriced database that non-accountant clients love so get use to it. edit-edit: Booger, expect that your contractor clients Quickbooks data will not be anywhere near accurate with Quickbooks unless the program was set-up and input by a qualified accountant.

Quickbooks is a software that you have to plan to purchase a new copy every year. I have one client that uses the "internet version" and I can access it (without any copy of Quickbooks) anytime of the year to make adjustments. However, the client pays a monthly fee that I believe amounts to about the same, or a little more, as purchasing a retail copy.