Sch C part of the year, than a S Corp

[Absolut]

Client was a Sch C from Jan - July 05, than became a S Corp.
Do I do the S Corp first, than do the 1040?

How do you split the depreciation out for both returns? Client says they don't want to use depreciation this year, but did last year. Can you just stop using it? Thank you for your help.

[Matt Sova]

Why?

Why do people still have split years for Sch C and S Corp when all that needs to be done is file the 2553 pursuant to Rev Proc 2003-43?

[Unregistered]

Was the C Corp. on a fiscal year? Otherwise, I do not think they will allow a split year.

[Brian EA]

Of course you have to do the Scorp before the 1040. The Scorp income flows into the 1040
There is nothing like splitting. Just file a regular Sch C and an Scorp return. The scorp has a starting date

You cannot take depreciation one year then omit it for the next year and then take it again.

What you can do is take the depreciation for part of the year for sch c and then continue it with the scorp

[Unregistered]

This is tough, but wouldn't you have to do the Sched C first to determine the depreciation basis to carry forward to the 1120S? I have a client doing the same thing, and I figured the Sched C income and expenses before I did the 1120S so I was figuring depreciation from the correct basis, otherwise you would be claiming the same asset's depreciation twice.

[Brian EA]

Excellent. Do the sch c depreciation first ,then the scorp and then go back to the 1040.
This should get it right.

[Absolut]

Sch C part of the year & S Corp the rest

Thank you for everyones response. One other question can they still file a 2553? How do you go about doing this?

[Matt Sova]

Absolut-ly

They can still file the 2553 under Rev Proc 2003-43.

[Bill Tubbs]

Whoa!

I thought Rev Proc 2003-43 had to deal with LLC's. Nowhere in this posting did I see mention of an LLC.

What if the business was a sole proprietor which then incorporated and then elected S Corp status? This would be a separate legal entity, and my understanding is this requires a Sch C then a 1120S.

Bill

[dsi]

The 2553 is the form used to "elect" s status. Wether it is a c-corp or an llc seeking to be taxed as an s-corp, use the 2553.

[Bill Tubbs]

Sole proprietorship?

The 2553 is the form used to "elect" s status. Wether it is a c-corp or an llc seeking to be taxed as an s-corp, use the 2553.

Couldn't have been a a C-Corp on 1/1/05 -- poster said it was Sch C.

If it was a LLC on 1/1/05, then F 2553 can be used to change it from Sch C to 1120S.

But, if it was a sole proprietorship on 1/1/05, and then a Corp was created in August, a Sch C is the only option for Jan - July. Then for August - December, it's either 1120 or 1120S (depending on whether F 2553 was used to elect S status).

Bill

[Matt Sova]

2553

Can be used by Schedule C as well.

[Bill Tubbs]

Sch C

Can be used by Schedule C as well.

But even if a Sch C can elect to be taxed as a S Corp, (presuming it was a regular sole proprietor and not an LLC the first part of the year), there were still 2 separate legal entities during the year -- the S Corp created in/about August. How can one 1120S be filed to include both legal entities?

Bill

[Matt Sova]

Easy

You file the 2553 with a start date of 1/1/05. Look at Question H on the 2553. It says "If the election takes effect for the first tax year the corporation exists, enter the month, day and year of the earliest of the following: 1) date the corporation first had S/Hs, 2) date the corporation first had assets, or 3) date the corporation began doing business.

You issue the stock on 1/1/05 and you are all set. Otherwise imagine someone comes to see you on 3/31 to get their 05 return done and they tell you they want to be an S-Corp for 2006. They get the incorporation papers filed on 4/7 and send in the 2553 to the IRS. When is the start date? 3/31? 4/7? No, 1/1/06.

[Bill Tubbs]

Date corporation created

>>1) date the corporation first had S/Hs, 2) date the corporation first had assets, or 3) date the corporation began doing business.<<

In your example, if the corp didn't exist prior to 4/7, how could the corp have done any of those things prior to 4/7? A Corp couldn't have issued stock on 1/1/05 if they didn't exist until 4/7/05.

So, I would still do Sch C for part-year and then 1120S for the remaining part of the year.

Bill