Section 179 Deduction from a S Corp.

[Maria]

Hello,

This comes up again. I am preparing an S corporation tax return. Before Sec 179 deduction, it has net operating loss of $20,000. The sole owner wants to take the Sec 179 deduction of $30,000. Can he do that? Since the K-1 does not show the Sec. 179 deduction, I guess he can't. However, he has earned income from another job about $120,000. I thought he can take the earned income to deduct the $30,000 Sec. 179 deduction like a Sch. C person does.

This is what I always believe but it seems not true.

Thanks a lot in advance for your help.

[Bill Tubbs]

No Section 179

Section 179 must FIRST be allowed at the S Corp level. If allowed at the S Corp level, then it flows through on the K-1, and must be reviewed to see if allowable at the taxpayer level.

Sounds like your S Corp is not entitled to a Section 179 amount, so taxpayer will not see Section 179 on his K-1 -- thus, no Section 179 for taxpayer.

Bill

[ChEAr$]

Yet

Section 179 must FIRST be allowed at the S Corp level. If allowed at the S Corp level, then it flows through on the K-1, and must be reviewed to see if allowable at the taxpayer level.

Sounds like your S Corp is not entitled to a Section 179 amount, so taxpayer will not see Section 179 on his K-1 -- thus, no Section 179 for taxpayer.

Bill

We still hear cases (from "other" preparers) which affirm that since the spouse has
wages...........!

[BOB W]

Sect 179.....

..... is allowed to be "exercise" even if there is a loss at the corporate level. 179 has carryover attributes and can be used on next years return, in full, if there are enough profits.

One has to look at past company history ( always losses ?), then sect 179 should never be taken. Your client will be better off taking normal depreciation, as that can cause a greater loss. Bonus depreciation was great in your circumstances, when it was available.

Be careful with 179 if the asset was financed and the shareholder(s) drain the checking account> Could lead to >Excess distributions...................

[veritas]

Hello,

This comes up again. I am preparing an S corporation tax return. Before Sec 179 deduction, it has net operating loss of $20,000. The sole owner wants to take the Sec 179 deduction of $30,000. Can he do that? Since the K-1 does not show the Sec. 179 deduction, I guess he can't. However, he has earned income from another job about $120,000. I thought he can take the earned income to deduct the $30,000 Sec. 179 deduction like a Sch. C person does.

This is what I always believe but it seems not true.

Thanks a lot in advance for your help.

Is there shareholder compensation (wages) on the return and if so how much?

[Maria]

No Officer Compensation

Good question, I had played with the program by putting $50,000 officer compensation, the K-1 still does not show Sec 179 deduction.

I ran over several cases of excess distribution, in those cases, the AAA account (schedule M-2) balance at the end of the year becomes negative. My supervisor always had me do a reclasification entry from distribution to loan to officer.

Thanks again for all of your help.

[JoshinNC]

How does the shareholder know that there is $30,000 in Sec. 179?

Hello,

This comes up again. I am preparing an S corporation tax return. Before Sec 179 deduction, it has net operating loss of $20,000. The sole owner wants to take the Sec 179 deduction of $30,000. Can he do that? Since the K-1 does not show the Sec. 179 deduction, I guess he can't. However, he has earned income from another job about $120,000. I thought he can take the earned income to deduct the $30,000 Sec. 179 deduction like a Sch. C person does.

This is what I always believe but it seems not true.

Thanks a lot in advance for your help.

If it's not on the K-1 where is he coming up with that number?

[BOB W]

K-1....

.... will show sect 179, if allowed. Check your source if your depreciation schedule comes from a fixed asst program. Otherwise, you have to enter it in the tax program Schedule k.

[veritas]

Good question, I had played with the program by putting $50,000 officer compensation, the K-1 still does not show Sec 179 deduction.

I ran over several cases of excess distribution, in those cases, the AAA account (schedule M-2) balance at the end of the year becomes negative. My supervisor always had me do a reclasification entry from distribution to loan to officer.

Thanks again for all of your help.

We use Lacerete which requires an entry override on form 4562 for shareholder compensation.

[OldJack]

We use Lacerete which requires an entry override on form 4562 for shareholder compensation.

Shareholders compensation as business income for §179 is only at the 1040 level. The limitation at the S-corp level is the S-corp profit after all employee salaries including the shareholder wages as an employee.

[Luis Mopeo]

Shareholder wages are added back to business income for partnerships and corporations when figuring the business income limit. See TTB page 9-15.

[ChEAr$]

illustration

S corp has a loss of 8,000 before any consideration of section179.

Potential 179 would be 20,000. Owner's salary is 11000.

add back owner's salary to the loss and you have a 3000 amount to be
used for the 179 pass through.

[OldJack]

Shareholder wages are added back to business income for partnerships and corporations when figuring the business income limit. See TTB page 9-15.

TTB 9-15 is talking about adding back shareholder W2 wages as business income at the 1040 form 4562 limitation level and NOT at the S-corp form 4562 level.

[BOB W]

Thanks Jack......

............... I thought I was going crazy.............


WAIT A MOMENT????? I just read TTB and they are right, shareholder wages can be used to determine 179 pass through when the scorp has loss or sect 179 is greater than the net profit or loss.

This a new to me. Has this always been this way?

[OldJack]

............... I thought I was going crazy.............

Well... actually I was going crazy inthat I was wrong... the officers wages in a S-corp does pass thru the §179 deduction to the shareholder level. I was thinking C-corp.

Actually it is not TTB 9-15 it is 9-16 with example on right side of the page.