S-CORP question

[GTS1101]

I am in the process of becoming an S-corp on Jan 1 2012. I believe I know the answer to my question but I wanted to see if anyone else had any other suggestions. I am on the cash basis accounting system and I will remain cash basis when I become an S-corp.

What do I do with bills that I receive in January 2012 and are paid in January 2012 for business cell phone usage in December, or how about my business line. The bill is due January 5, 2012 for calls made in December. Or my internet use in December paid in January 2012? I wanted to shut down the sole-prop and only file on tax return in 2012 for the s-corp and not a schedule C. I am assuming that I will have to pay those bills out of the sole prop in 2012 because those expenses were for the sole prop and not the s-corp? I guess then what if I receive income in Jan 2012 for someone who paid me for services done in Dec 2011. I would assume that it would have to go on a sole prop Sch C for the month of Jan 2012 and then shut down the sole prop in January?

I know that cash basis is when you receive it and not earn it but since the S-corp did not exist in Dec 2011 I am assuming that the income will have to be reported on a Sch C when received? And same with the expenses because the S-corp did not exist in December can't deduct the expense on S-corp tax return in 2012.

Am I thinking correctly on this or anybody else have any ideas? I am new to setting up corporations and changing entities. Any recommendations would be appreciated.

Thanks!
GTS1101

[MLINDER42]

S Corp

You are on a cash basis that means income is earned when you receive it and expenses when you pay them.Stop over thinking the sole prop is out of business on 12/31 so all new bills and new income go to the S corp.

[Gary2]

Wouldn't you need to treat it as having the S-Corp acquire the business, including assets and liabilities (read: accounts receivable and accounts payable)? I'm not sure how the mechanics work, but I'd expect there would be some impact on basis at a minimum. Hopefully you wouldn't have to recognize any gain or loss on the transfer, but I'd worry about doing something wrong to mess it up.

[BOB W]

Incorporating a SP is a non-tax event. Take the SP double entry books and bring it into the corporation. SP's Capital Account is now the Corp's Capital Account. AAA will be zero. Pick up Assets and Depreciation as it exists on SP books.

ALL chart of accounts balances are now the Corporation's chart of accounts balances except Withdrawl account. AAA(formally withdrawals) is where you post Net Profit Distributions.

Any assets that require titles should be re-registered in the corp's name or remove it from the assets list before it gets into the corporation.

By the way, Since you are going to be an S-Corp I would not worry about CC bills. But if you insist, deduct them on the SP 2011 return and set up a Credit Card Payable Account. This will be paid by the Corp in January 2012. The Capital account would be adjusted for the liability in 2011 so all will be above board for IRS.

[oceanlovin'ea]

another idea

Why not just go ahead and pay them on Dec 30th even though the bill is technically not due yet.


Linda, EA

[Davc]

Incorporating a SP is a non-tax event.

Usually. However don't forget 351.