I'm bragging on TTB

[WhiteOleander]

I'm sorry, I shouldn't have used the term "lots of", and used "some".

Thanks for the reference to the court case on TTB 8-13. Bees, I don't mean to be a PITA (honest). But, this case disallowed the deduction by the "employee", not the Corporation since it was a Corporate expense. It doesn't say it wouldn't be deductible to the Corporation.

Weren't we talking about a sole shareholder paying corporate expense with a personal check?

It is still the same thing. A shareholder cannot pay a debt for a corp and deduct it themself. They did not owe the debt. The corp owed the debt. They are two separate entities. Remember, that this is not a partnership where the partner can deduct certain expenses not paid through the partnership.

The corp would have to reimburse the shareholder for the expense and then deduct the expense on the corp return.

Lets say you are a shareholder in GE and you pay an expense for them. (something I'm sure they would aprreciate nowadays.) You would not be able to deduct that expense on your tax return because it was not your expense.

[Zee]

OK. I give up! "Uncle".

I'm surprised more here haven't had folks that elected to be treated as an S Corporation (with a single shareholder) after operating a sole proprietorship and failed to establish a new bank account for a portion of the tax year using their sole proprietorship account instead.

My guess is some accountants treat such expenditures as a loan cautioning there clients such treatment might be disallowed and suggesting a corporate checking account be established immediately.

Would that subject the accountant to a possible preparer penalty? I suppose. So, maybe those engaging in that practice should discontinue. It's probably too risky with the new preparer penalties.

[ChEAr$]

Let's clarify

OK. I give up! "Uncle".

I'm surprised more here haven't had folks that elected to be treated as an S Corporation (with a single shareholder) after operating a sole proprietorship and failed to establish a new bank account for a portion of the tax year using their sole proprietorship account instead.

My guess is some accountants treat such expenditures as a loan cautioning there clients such treatment might be disallowed and suggesting a corporate checking account be established immediately.

Would that subject the accountant to a possible preparer penalty? I suppose. So, maybe those engaging in that practice should discontinue. It's probably too risky with the new preparer penalties.

People (folks) don't elect "to be treated as an S corporation." They go to a lawyer
who takes them through the steps to form a corporation, which is a distinct and
separate legal entity from any single shareholder. We need to keep this in mind
and remind our client that after the corporation is formed, when he and I are sitting at
the table, there are actually three people under the law present at that table.

A husband/wife partnership once upon a time had the lawyer form a corporation (or so
they said since I never saw a copy of the articles of incorporation), but continued business
as usual; same bank account, no notifications to customers, suppliers, or the public
that there was a corporation at that address. Yes, I dropped them quicker than you
could say "jack rabbit."

[Zee]

Many folks don't "go to a lawyer" to form their Corporation and elect S status (thanks for the clarification) , they often do it themselves and it's not done properly. Or, they "go to a lawyer" and it's still not done properly. Go figure.

[Bees Knees]

Many folks don't "go to a lawyer" to form their Corporation and elect S status (thanks for the clarification) , they often do it themselves and it's not done properly. Or, they "go to a lawyer" and it's still not done properly. Go figure.

When someone tells me they filed their own paperwork and now they are a corporation, I ask them did they transfer anything into the corporation in exchange for stock.

Answer: “Huh? What do you mean?”

Me: “Did you open up a corporate checking account, transfer money into it and then have the corporation make out stock certificates in exchange for that money?”

“No.”

“Then you have not yet conducted business as a corporation. You are still a sole proprietor.”

Then I proceed to explain all the corporate minutes they need to take, the extra fee I will charge them for bookkeeping since no matter how hard they try, their quickbooks will not be enough. Then I proceed to explain all the extra fees I will charge for a separate corporation return, the extra fees I will charge for payroll taxes. The requirement to make periodic deposits of those payroll taxes, the additional taxes they must pay to the state for unemployment, etc. etc. etc.

Then I ask: “Why did you want to be a corporation?”

“Because of liability protection.”

I explain in Minnesota, there is no annual fee for being an LLC. You can continue to be taxed as a sole proprietor, meaning none of those added fees from me for extra tax returns, or added taxes or added payroll junk or corporate minutes, etc. In fact, you can simply just continue to run your business as you always have without any extra paperwork involved.

Plus you get the same limited liability protection as you do as a corporation.

Their response is "How do I switch to an LLC?"

“Easy, you never transferred anything into the corporation, so there is nothing involved in closing it. Simply call IRS and say you never operated as a corporation and you want to cancel your EIN (if they even managed to get one). Then go online and become an LLC and re-apply for a new EIN as an LLC.

Works every time. I don't have corporate clients anymore.

[ChEAr$]

And.....

be sure to file articles of dissolution for the corporation with the Secretary of State.

[Zee]

When someone tells me they filed their own paperwork and now they are a corporation, I ask them did they transfer anything into the corporation in exchange for stock.

Answer: “Huh? What do you mean?”

Me: “Did you open up a corporate checking account, transfer money into it and then have the corporation make out stock certificates in exchange for that money?”

“No.”

“Then you have not yet conducted business as a corporation. You are still a sole proprietor.”

Then I proceed to explain all the corporate minutes they need to take, the extra fee I will charge them for bookkeeping since no matter how hard they try, their quickbooks will not be enough. Then I proceed to explain all the extra fees I will charge for a separate corporation return, the extra fees I will charge for payroll taxes. The requirement to make periodic deposits of those payroll taxes, the additional taxes they must pay to the state for unemployment, etc. etc. etc.

Then I ask: “Why did you want to be a corporation?”

“Because of liability protection.”

I explain in Minnesota, there is no annual fee for being an LLC. You can continue to be taxed as a sole proprietor, meaning none of those added fees from me for extra tax returns, or added taxes or added payroll junk or corporate minutes, etc. In fact, you can simply just continue to run your business as you always have without any extra paperwork involved.

Plus you get the same limited liability protection as you do as a corporation.

Their response is "How do I switch to an LLC?"

“Easy, you never transferred anything into the corporation, so there is nothing involved in closing it. Simply call IRS and say you never operated as a corporation and you want to cancel your EIN (if they even managed to get one). Then go online and become an LLC and re-apply for a new EIN as an LLC.

Works every time. I don't have corporate clients anymore.

NICE...I like the scenario

[Peachie]

Bees, What a great explanation

I love how you explained how becoming an LLC gives people that want to be a corporation the same status without all of the problems involved in becoming a corp. I have tried to explain this to many people that want to do this with so little thought as to why. They don't even know the difference between the entities. I have been able to steer a few to LLC status. Your explanation is just what I need and it's clear as mud .

Thanks.

Peachie