Discussion:S-Corp, help with organization and salary

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Consumer Questions --> S-Corp, help with organization and salary


Relleum (talk|edits) said:

18 September 2007
Greetings. I am the sole shareholder/employee of a Florida based S-corp for 2.5 years now. Previously, I had an accountant who prepared my taxes, but this year I decided to do my own. As I went through all the motions, I've had several tough questions need to be answered in order for me to better tackle this thing next year. A little info about me... I am a full time employee of a software company. My s-corp is a web development company (completely service based) that provides supplemental income. My salary is about ~80k plus benefits from my day job, and my s-corp earned about 21k in gross profit, before deducting expenses.

I deduct 64% (calculated based on mileage) of my car lease and related expenses (insurance, gas, etc.) I deduct my dedicated home-office space (14% of my home), along with 14% of any bills that relate to the home office (phone, internet, electricity). With percentages like this, which accounts should be paying these bills? Right now i have a corporate bank account where i pay my car lease, internet, and cell phone, but the rest go through my personal bank account. I've read that the right way is to have everything that intersects between biz and personal go through the personal account, and somehow allocate the appropriate percentages to the s-corp when filing at the end of the year. This would be much cleaner for my accounts, however, I have no idea how where this goes in the 1040 or 1120s. For 2006, I used TurboTax for Business & Corps to help prepare my 1120s, but I'm not sure if numbers are lining up correctly with my Quickbooks balance sheet, or if they are even supposed to line up at all! With expenses split across the accounts, it is hard to tell. What are best practices for handling this scenario?

Another big issue here is determining salary. For 2006, I did not give myself a salary, but I periodically drew money out of the corporate account and put it into my personal account. How should i reconcile these transactions in quickbooks, and what is the best way to setup the Chart of Accounts for this situation? Should I start paying myself a salary?

Periodically, I buy big purchases (computers, printers, etc.) through my biz account. These are listed under form 4562, depreciation report. For the convenience, I elect to take Section 179 because for me it is easier to purchase it, account for it in the first year, and not ever have to think about it again. BUT, is that really the case? If i elect first year full depreciation, do i have to mention these big name items on next year's form 4562? I ask because i bought some stuff in 2005 and some more stuff 2006, but I only have this year's stuff on the 4562.

Lastly, for my situation, I would like a definitive todo list of forms to file for the year. For the life of me, I can't find this anywhere for my particular situation! So far, this is what ive got:

Yearly Federal: 1120-S (with k-1, 4562, but skip m-1) 1040

Yearly State: Annual Report

I know, it is a pretty short list so far. I am probably missing unemployment forms, state property tax, and maybe some state-related forms, but it is very hard to figure out right now.

Bushmaster (talk|edits) said:

18 September 2007
Go back to your accountant and beg him to take you back.

Taxref (talk|edits) said:

18 September 2007
What are best practices for handling this scenario?

I strongly recommend that you immediately retain the services of a local accountant whose practice includes the taxation of individuals and small businesses. The questions you ask are very broad, and it would be possible to write chapters about them. Hopefully you have not already done anything which will result in unintended negative tax consequences.

Pegoo (talk|edits) said:

18 September 2007
Does the risk of penalties worth saving the couple of hundred bucks having an accountant? It appears to me that you will be over your head soon.... Businesses flourish and succeed when the owner can focus on it's core activities rather than being side tracked and consumed by things that can be bought. My 2 cents.

CrowJD (talk|edits) said:

18 September 2007
Turbo tax (for consumers).... Quickbooks.... Tax gap.

CrowJD (talk|edits) said:

18 September 2007
True, get an accountant.

BethAZ (talk|edits) said:

18 September 2007
I stopped reading at "Previously, I had an accountant who prepared my taxes, but this year I decided to do my own."

JR1 (talk|edits) said:

September 19, 2007
Sorry, I agree. You're in a landmine and don't know it.

Jdugancpa (talk|edits) said:

19 September 2007
I think the definitive list of forms required for your situation used to be called "Package X", but unfortunately it became too costly for the IRS to publish that many forms anymore. So here is the definitive list you can use now: http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

CrowJD (talk|edits) said:

19 September 2007
And your new accountant may know of a good lawyer you can visit. Remember all those forms you signed when you got your job? Nobody reads em, but..... There are all kind of prohibitions you might have agreed to regarding divulging trade secrets,etc; AND if you are under an employement contract (rare) there may even be a no-compete agreement you signed. Who knows? Lawyer can also help you with all those little nagging things those state and federal depts. require. It will all cost more than the $200.00 Pegoo mentioned (figure of speech), nevertheless...you will find it saves you in the long run. Penny wise, pound foolish.

Southernbellecpa (talk|edits) said:

19 September 2007
I pay someone to develop my web page - you should pay an accountant to prepare your taxes. I'm sorry but you are making a big mistake by minimizing the importance of this - in doing it yourself. As a rule of thumb, an S-corp tax return will run you $500-$750 if you furnish financial statements which need very little adjusting. If a lot of journal entries must be made then it could be $1,500-$2,000. It sounds like you could clean up your financial statements and would only need to spend in the $500-$750 range. Money well spent!

Relleum (talk|edits) said:

24 September 2007
Wow, not a single question answered, except for Jdugancpa giving me a list with about 600 entries in it. Sure, I get that I would be safer if I paid 1000 dollars a year to an accountant. But, my business is very simple and unchanging year after year. Plus, it is a relatively small amount of supplemental income.

My questions aren't that broad, either:

"What is the best way to record how I draw money out of my business account?" --I need to know this with or without an accountant. And the best way couldn't possibly be that hard to figure out with 1 employee with full ownership of the company. When I asked my accountant last year, he said "it doesnt matter".


"Do I have to worry about last year's fully depreciated items on this year's 4562, depreciation report?" -- C'mon guys, this is a yes or no question!

"After I start charging all shared biz/personal expenses strictly through my personal account, how do I transfer those deductions back to the business at the end of the year?" -- Again, most of this question is already answered. I already know what I can deduct and how to determine the percentage that should be deducted, it's just a matter of where to fill it out on the paperwork.

"A list of forms?" --There aren't that many, especially in FL where there is no state tax. I know I'm supposed to take care of my annual report, my 1120s (and k-1 info goes to my 1040), some unemployment form that always comes in the mail, and property taxes (also comes in the mail) on the part of my house that is the dedicated office. It would just be nice to have someone lay out a definitive list along with the dates I have to worry about.

Again, we are talking about a simple, service-based company with 1 employee that *doesn't change* year after year. It would be nice to have a helping hand, rather than a whole bunch of you repeating the same thing about how doomed I am.

Cmt56ss (talk|edits) said:

24 September 2007
I'm not trying to give you a run around on this, but as virtually everyone else said, seeking professional help is your most beneficial route. I say this because, even though your business may be relatively the same from one year to the next, tax laws and regulations are anything but consistent from one year to the next. You may be able to plug numbers into a return and satisfy the IRS filing requirements, knowing the most beneficial ways to help you reduce your overall tax liability is something a good tax professional is there for.

Phil Moody (talk|edits) said:

24 September 2007
You can get all of the above answered by going to the IRS and/or the state web site. Most of the forms are available there. Most forms have instructions.

The IRS also has several publications for small business. Most have due date listings.

Oh, by the way, I would not recommend you judge the due dates of reports by when they come (or don't come)in the mail.

Hope this helps.

Relleum (talk|edits) said:

24 September 2007
I don't judge due dates by when they come in the mail. I'm just trying to compile a definitive list, even if it is just for this year.

Also, I know tax laws change. The point is that there is a core here that, with a few questions answered, could be accomplished by myself.

I know that the best way would be to pay an accountant. Now that we are past that, surely someone can at least attempt to answer one of my questions.

Bottom Line (talk|edits) said:

24 September 2007
Would you try to do surgery on yourself? Believe it or not, we're not trying to be difficult. We're trying to help you.

Cmt56ss (talk|edits) said:

24 September 2007
For your first question, "drawing money out of the business account" what are you referring to? Paying yourself a salary or other compensation?

As far as the items on the prior 4562, they should show up on the return as fully depreciated. Once the item is fully depreciated, does not mean you no longer have to show it on the Balance Sheet of the return. If you have no depreciation for the current year, there is no need to file form 4562.

And transferring the deductions back to the business account, assuming you are paying the business expenses with personal funds (derived from your day job, or means other than the S-corp gross receipts), you can create a shareholder loan account for all the expenses you paid for the business with personal funds. There are new rules concerning SH loans and S-corps that take effect for 2007 tax year. I'm not sure what the regulation is, but hopefully someone can post a link to it on the IRS site.

LJACPA (talk|edits) said:

24 September 2007
I've watched this discussion for nearly a week and cannot believe that anyone with as many questions as you have would even attempt to prepare your return yourself. I'm being cautionary just as everyone else who responded and not trying to disparage you, simply encouraging you to spend a few hundred dollars now to save potentially a lot more later when you've missed something, reported something incorrectly, etc. Even if you get through the 1120S, possibly 4562, 4797 if you've disposed of anything, etc. and get to the 1040, you've not provided enough information for prior years to determine if you have any basis which will impact how/whether you'll report the distributions you've taken. There's so, so, so much more that you haven't told and there's no way anyone here can give you enough answers for you to prepare your returns properly. Pay the personal bills personally and have the company reimburse you (DR, Expense; CR, SH Loan/Distributions). You should not be deducting home office expenses but having the company reimburse you (several in depth discussions on this). Have you not filed payroll tax returns for 2006 or are you simply working on 2007? You should be filing these quarterly even if you do not pay yourself a salary. There are opportunities for tax planning/savings even in a small S corp. I'm afraid you'll miss those if you don't know what questions to ask. Two cents, that's it.

Blrgcpa (talk|edits) said:

24 September 2007
Consider the time it takes you to prepare the return. What do you receive an hour? Your time would be better spent working on what you know and leave the acctg and tax returns up to the pros.

1) YOU MUST BE ON P/R AND PAY THE W/H TAXES, W/C AND DBL AND STATE UMEMPLOYMENT IF NEEDED. You should go back and issue a W-2 and put all the taxes into the 4th quarter. There will be a penalty at this time, but it won't be as bad as an irs audit.

2) To transfer payments made personally to the shareholder loan acct you need j/e, probably more than 1.

3) As for depreciation of assets - the amount taken depends on the a variety of factors. If you an 179 the item fine, but some instances you can't. Depreciated assets must show on the books until they are disposed of.

THE BEST ADVICE IS TO GET PROFESSIONAL HELP!

Vermontcpa (talk|edits) said:

24 September 2007
Forms would include

Federal 1120S K-1 941 940 1040

Fl State UCT-6 DR-601C

Blrgcpa (talk|edits) said:

24 September 2007
There's also depreciation sched and any other item that's needed to be detailed.

JR1 (talk|edits) said:

September 25, 2007
It would be much easier to explain field dressing deer without pictures than what you're asking for. We're not trying to be rude at all, you'll find that we're most helpful. And the best help is to say loud and clear to go find a good accountant who's familiar with S corps. Seriously. If we teach you how to avoid some of the bullets, you'll just step on a landmine. There are many.

Relleum (talk|edits) said:

25 September 2007
To those who honestly attempted to answer my questions, thank you.

I filed for 2006 as having no salary, but only because that is what my accountant did for me last year.

I think the solution here is to find a new accountant for 2007, and keep my fingers crossed for the 2006 return i filed recently. I really didn't like my previous accountant, but since he is the only accountant I've ever used, I should try to find someone that is more compatible and familiar with my type of setup.

This year, it looks like my business will double it's gross income, so it becomes even more important to get everything air tight.

On that note, does anyone know of a CPA in the South Florida area that can come highly recommended?

Relleum (talk|edits) said:

25 September 2007
To VermontCPA,

Thanks for the list. That was exactly what I was looking for!

JR1 (talk|edits) said:

September 25, 2007
*bang* That's the sound of your 06 going off.

Kevinh5 (talk|edits) said:

25 September 2007
Relleum, consider an Enrolled Agent in your area when you are shopping for a tax professional.

BEGooding (talk|edits) said:

September 27, 2007
So, all the warnings / coaxing from the pros was worth while. Sounds like you will be getting the help you need.

Bottom Line (talk|edits) said:

28 September 2007
Be sure to take a copy of your 2005 and 2006 returns with you when you get your 2007 return professionally prepared. They may need to be amended. SandySea is a poster here and is in South Florida.

To join in on this discussion, you must first log in.
Personal tools