Form 1120S Asset Sale

[Terry D EA]

S-Corp client sold a 2016 Jeep in July of 2021. Lost in an email was a request for me to remove the asset which I did not. The vehicle was sold and after depreciation there is a gain. First thought was to report the sale in 2022 and report the gain on the shareholder's K-1. Not sure the best route to take. It seems to be proper to amend 2021 to reflect the sale, then all is well. Opinions.

 

[Lee B]

How much of a gain are we talking about?

[Terry D EA]

11K

[Lee B]

In that case I would amend.

[Terry D EA]

That was my first thought initially. I don't see the need for a 3115 but just amend the return. Just for clarification cause I've been at this entirely too long, the sale should be reported on form 4797 correct? Or, should it go on the shareholder's K-1 form under long term gains?

 

[Abby Normal]

Where did the money go? If it was deposited into the corporate bank account, it had to be accounted for somehow. Right? Or does this S corp not keep books?

[Lee B]

1 hour ago, Abby Normal said:

Where did the money go? If it was deposited into the corporate bank account, it had to be accounted for somehow. Right? Or does this S corp not keep books?

Excellent question, was it included in sales or was it posted to a balance sheet account?

[Terry D EA]

1 hour ago, Abby Normal said:

Where did the money go? If it was deposited into the corporate bank account, it had to be accounted for somehow. Right? Or does this S corp not keep books?

The funds were used to purchase another vehicle. Their accountant showed the gain as a negative "Other Expense" and added the gain to "Other Income". That makes everything a wash which I cannot believe is correct. I will ask the owner but I think it is a safe assumption (dangerous I know) the funds were deposited into the OP account. I know there was no dealership trade-in. 

[Abby Normal]

That "accountant" doesn't even deserve to be called a bookkeeper. Sheesh!

[Lee B]

Assuming that the Jeep was fully depreciated at the end of 2021, it would be a wash, in which case I would remove the asset in 2022.

[Lee B]

17 hours ago, Abby Normal said:

That "accountant" doesn't even deserve to be called a bookkeeper. Sheesh!

If all my clients had competent bookkeepers, I would make a lot less money

[BrewOne]

Been some years since vehicles could be part of a like-kind exchange, there should be a proper disposition.  Make sure you get all the information for any vehicle a client has in service.

[Abby Normal]

2 hours ago, cbslee said:

If all my clients had competent bookkeepers, I would make a lot less money

You would actually make a lot more money per hour and enjoy your work a whole lot more.

[Lee B]

15 minutes ago, Abby Normal said:

You would actually make a lot more money per hour and enjoy your work a whole lot more.

Since most of my work is monthly client writeup/payroll, I work with a lot fewer clients for which I charge more per hour than I can for tax preparation.

[Terry D EA]

On 6/9/2023 at 8:18 PM, cbslee said:

Assuming that the Jeep was fully depreciated at the end of 2021, it would be a wash, in which case I would remove the asset in 2022.

The jeep was not fully depreciated which is why there is a 10K gain. I was thinking of removing the asset in the year of the sale which is July 2021. I(n doing so, there is minimal impact on an already high loss. I've already completed the tax return for 2022 and have changed everything a couple of times. Their accountant has removed the expense and income figures per my instructions. I'm now leaning on 3115 to correct the depreciation and have already removed the asset for TY 2022. We're only talking a couple hundred dollars for 5 months of depreciation. 

[jklcpa]

This isn't a 3115 change because it doesn't affect more than the most recent 2 tax years. Amending is the appropriate method to correct this.

[jklcpa]

On 6/9/2023 at 1:02 PM, Terry D EA said:

sale should be reported on form 4797 correct? Or, should it go on the shareholder's K-1 form under long term gains?

It goes on 4797, pg 2, part 3.  If the total depreciation allowed or allowable is more than the $11K gain, then the entire amount should be ordinary gain flowing to 4797, page 1, part 2 and from there to 1120S, pg1, line 4. 

[Terry D EA]

Hi Judy, I've been going back and forth with this and thanks for the clarification. From the onset, my original post was to use form 4797. All of the responses were good and some make you question what you already know. Thanks for the straightforward answer. The accountant that prepped the P&L really threw me off with the negative other expense and including the gain in other income.  After I questioned this, they removed those two entries. I've read in the past were some say to correct the depreciation in the current year instead of amending. I've never been in favor of this but did question the possibility. As I said, amending the 2021 will make a small dent in an already substantial loss and of course, differences in the shareholder basis. 

Thanks!