Sole Prop to Sub S

[Susan]

Landscaper went from a sole-prop to a Sub-S corp.

As far as the assets, what's the best procedure when transferring them to the Sub-S

Appreciate any comments.

[veritas]

What are the assets and what are the liabilities if any connected to the assets?

[Susan]

He has 28,000 tractor and 40,000 Dump Truck.

He owes about 35,000.00

Can he lease them to the corporatation? or does he transfer them and continue the depreciation.

[veritas]

You are doing a tax free exchange transferring assets into a corporation in exchange for stock. Make sure your basis in the assets exceed the debt the corporation assumes. The depreciation continues on just as it was as a sole prop.

Leasing back of assets is sometimes done. Taxpayers do this to collect money from the corporation and avoid self employment taxes.

[Susan]

Thanks

I guess I'm on the right track?

[veritas]

I'm wondering what your tax basis are in the two assets?

[Susan]

He bought the tractor in 9/12/03
$21,015 Sect179 in that year

GMC Dump 5/05 33,248 depreciating 5 years.

[veritas]

So the debt exceeds the tax basis? To make the exchange completely tax free you will need to add some more assets. Cash would be good.

[Susan]

No, he has assets exceeding debt.

I'm just wondering if I should continue they depreciation on 1120S or lease them to the corp.?

[Bees Knees]

TTB, page 18-8, "Payments made to employees [the shareholder employee of a corporation] for equipment that is required as a condition of employment are taxable wages, unless the amount is paid under an accountable plan. (Rev. Rul. 2002-35)"

In other words, you can't avoid social security and Medicare tax by renting equipment to your corporation if you are the one using the equipment to perform services for the corporation, unless you set it up under an accountable plan arrangement.

[JON]

179

If you 179 he has 0 basis in it. Remember it is TX basis.