Handling of contributions by S corp

[thomtax]

Office Mgr of an "S" corporation has just informed me that the 100% owner of the company stock is planning to start giving a weekly church contribution from the corp., "since it is his company and his money". These are his words, not mine.

I know that it is not deductible by the corp. It appears to me that this will show up on the K! for the Corp as being a non-deductible item flowing through to him.

I just want to be sure that it is not something that should be added to the W2 instead. He does take a salary, after much arguing, instead of just taking out money, so this is not a problem, at least for now.

All replies and reasons behind them, if I am wrong, will be appreciated.

LT

[oceanlovin'ea]

I believe you are right. It is not a deductible expense to the corporation. It flows through the K-1 and if he can itemize he can take the deduction on his Schedule A.

Linda, EA

[JohnH]

Making the contribution through the S-corp is actually the best way to make his contributions.

If he makes contributions from his personal funds, the contribution comes out of salary and wage payments on which he has paid SocSec/FICA and the company has matched that withholding. (Since the company's money really is his money, you can lump it all together for the purpose of this analysis).

So taking into account the after-tax consequences of all this, his contribution deduction through the S-corp is saving him about 11-12% of the contribution amount vs making the contribution from his personal funds. (The income tax consequences are a wash)

[thomtax]

Thanks to both of you. This is something that just came up today and I wanted to get it started on the right track and not the usual "Oh I forgot to tell you" situation at the end of the year.

And thanks JohnH, for the "heads up" about the ss situation. I had not thought that far ahead at this time. Good info to remember.

LT