Discussion:Desperately need help!!!
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Discussion Forum Index --> Advanced Tax Questions --> Desperately need help!!!
Discussion Forum Index --> Tax Questions --> Desperately need help!!!
Heathermarie (talk|edits) said: | 22 April 2011 |
| I have a huge goofed-up mess with a client.
1. Taxpayer has an S Corp, but has not paid any salary so I am wondering if I can use amounts paid to him as contract labor. I know that this is incorrect, but since SE tax will be paid on it, will there be a problem? 2. Some of the expenses were put on a family member's credit card and not ran through the S corp. These amounts are basically going to be a gift to the taxpayer because it is doubtful they will be paid back. Can these amounts go on the Sch C to offset the contract labor income from the S Corp? Should they go into the S Corp instead? It's a big mess and I'm not sure how to handle. 3. Car is not titled in S-Corp, but it is being depreciated. Since business % is less than 50% for the entire year, should I take the car out of the S-Corp? If so, how is the difference between Cost and Accumulated Depreciation handled? Car hasn't been sold and there was no Sec 179 exp so is there depreciation recapture? Please help! I've researched this, but since it's all goofed up there are no clear cut answers on how to handle. Thanks! | |
| 22 April 2011 | |
| You haven't described the type of business it is - and whether or not contract labor is SUITABLE for that type of business.
Under the circumstances, which as you describe is NOT really the best - issue a 1099 form, pickup SE tax on 1040, unless you feel you can gross up 4th qtr 2010 payroll tax returns with W-2, and pay the SUI/FUI taxes with all the penalties and interest. That really is more advisable. Look - the client screwed this up - you didn't. Regarding the expenses - how much is it? Does it go over the $ 13,000 gift tax exclusion? I would record the expenses on the corporation, crediting additional paid in capital Regarding the car - I would reverse it out as well as the depreciation and record the difference as a distribution to the shareholder, but journalize in documented standard mileage allowance crediting either a loan or additional paid in capital, or reduce the distribution amount. I would also check to see who paid the auto insurance. If the corporation did - then I would pick that up as a distribution and remove it from the expense. | |
Heathermarie (talk|edits) said: | 22 April 2011 |
| Thanks for the response. It is an insurance agent. The amount of the "gift" isn't over $26,000 since I'm going on the basis that his parents each gifted him an amount.
Thanks for your help. Your response is very similar to what I was thinking, but since it's so messed up, I just wasn't sure. | |
| April 22, 2011 | |
| A. Yes, not ideal, but the only solution you have. Issue a 1099, pick it up on Sch. C. Start him on payroll for 2011.
B. A corp cannot make a gift. US knows that. So it can add to the comp on the 1099, or be a s/h loan until you figure out what to do with it, but since you don't expect any leftover profits to repay it, maybe just expense it out to him now. C. Leave the car there, but reduce for the under 50% use rules. Many cars are not titled the corps they're deducted in. No biggie. | |
BobTheMobCPA (talk|edits) said: | 22 April 2011 |
| The 'no biggie' comment, unfortunately, is highly subjective. Some of us actually feel that this type of comment is why we need regulation of paid preparers. We feel that it IS a biggie to commit a fraud on a tax return. A lie is a lie is a lie, even if everyone else is doing it/saying it. As Belle (Watling) said: "It wouldn't be fitting." Of course Mammy said it too, so it must be true "It ain't fittin'. It just ain't fittin'." | |
| 22 April 2011 | |
| BobTheMobCPA - If you had been following this forum for any amount of time, you would realize that JR1 is one of the most capable and clear-thinking of contributors, especially in the area of S corporations, not to mention being extremely patient and generous with his assistance to less experienced practitioners.
Corporations being considered beneficial owners of autos that are titled to shareholders is supported by law and is a longstanding, common industry standard. | |
| 22 April 2011 | |
| JR - The corporation wasn't gifting the money to the shareholder - a relative was.
So what I proposed was having that money be indirectly posted in the general ledger as IF the shareholder provided his own funds to pay for the business expenses. Hope you see the difference. | |
| 22 April 2011 | |
| 1. Use form 1099. 2. Increase share holders contributions and expense those items. 3. Take the car out of the S Corp. Write off business use on Sched C. | |
Heathermarie (talk|edits) said: | 22 April 2011 |
| Thanks for the responses! I do think I will take car out of S Corp and deduct on Sch C especially since car payments weren't even made from the corp and taxpayer did use the car less than 50% business. | |
CathysTaxes (talk|edits) said: | 22 April 2011 |
| Heathermarie, trust me, get a retainer first. | |
RoyDaleOne (talk|edits) said: | 22 April 2011 |
| Pray tell what justification is there for putting the car on Schedule C?
Suggest 10,000 business miles at fifty cent, or figure actual expenses. Debit auto expense $5,000 Credit (loan from stockholder or APIC) $5,000 | |
CathysTaxes (talk|edits) said: | 22 April 2011 |
| Yes, shouldn't this be unreimbursed employee business expenses, form 2106? | |
| April 22, 2011 | |
| No can do that on your own S. Either reimbursed or disallowed. I don't see why the car has to move anyway. You switch methods, do some recapture for less than 50% use, and move on. Granted, had it never been put in the corp, I'd just take mileage. But since it is in the corp, leave it alone. | |
