Questions on 1120S return

[StevenL]

Hello All,

I have been preparing individual returns for several years but this is my first time preparing a business (1120S) return so I hope you don't mind if I pick your brains and rely on your expertise on a few things.

This is a one person S-Corp where the owner recently purchased (after his lease expired) a vehicle that is used exclusively for business. He wants to be able depreciate the the cost of the car on the business return but he's already in a loss situation so I believe it is best if he claims the depreciation on his 1040 individual return. He is an attorney that works for a firm and the S-Corp is a consulting business he has on the side so he's using the vehicle for both jobs.

My questions are:

1. Should he claim the depreciation on the vehicle against the business or against his job?

2. If he claims it against his business it will only increase his loss so is it possible to carry forward the losses to future years such as an NOL?

That is all I have for now. I appreciate any advice you can give on this matter,

Thanks,

Steven L.

[TAXBILLY]

Who owns the vehicle? The shareholder or the S-Corp?

taxbilly

[TAXBILLY]

>>a vehicle that is used exclusively for business<<

100% business. He uses another vehicle to commute to his job??

taxbilly

[Pacun]

He doesn't have a choice, depreciation is taken where the vehicle is used the most.

[Lion EA]

Only the owner can depreciate the vehicle based on percentage of business use. As an employee of his S-Corp, he would take unreimbursed business expenses on Form 2106 to Schedule A on his Form 1040.

He could have an accountable plan at his S-Corp to reimburse employees such as himself for business use of his personal vehicle and submit an expense account periodically. Then, the S-Corp could deduct the expense without the employee having extra income.

Do a little reading re S-Corp greater than 2% owner/employee fringe benefits. Not very intuitive and not the same as C-Corp employees and not the same as partners. That's why you should charge the big bucks!

[StevenL]

Thanks everyone for all your help. It looks like he should claim the depreciation on form 2106 to Schedule A and 1040 which was how I was thinking it should be done too. This is a one person S-Corp so he is the owner and sole shareholder. Also, since the S-Corp is basically a side business he definitely uses the vehicle more for his regular job.

As to charging the big bucks...I agree...however I was very upfront with him and told him that this was my first business return so I wanted to do it more for the experience (and to start building a clientele) than the money. I believe his return is a bit more simpler than what I might experience in the future so I look at it as good way to get my foot in the door of preparing business taxes.

Thanks again for your help.

Steven L.

[Terry D EA]

You have received very good responses here. I would have asked the same questions and Lion's suggestion is the best with the possiblity of an accountable reimbursement plan. Question is, is this guy an employee of his own S-Corp? Good luck with this.

[StevenL]

You ask a very good question. To be honest, I don't know if he considers himself an employee or not. I will have to ask him. Would it make a difference on how the return is prepared one way or another?

[Lion EA]

An S-Corp shareholder who provides services to the business should be an employee and receive a reasonable salary. Maybe not if there's not profits from which to pay him. But, otherwise, he needs to run payroll. Do you provide payroll services? You may have even more work from this client!

[TAXBILLY]

If you are preparing a 2009 corporation return I would suggest you put it on extension because the deadline is only 15 days away and this way you'll have more time to study up on the situations and make the right decisions.

taxbilly