S-Corp question

[DTS]

A client initially put in $108,000 to start his S-Corp, which he found out later on in the year, was too much and left him short on paying his personal bills. He took out $45,000 to do this.

How do I show this $45,000 on the return for the corp? Does this have to be shown as a distribution to him or would it be permissible to reduce his contribution? I'm going to have to show it on the b/s somewhere.

Thank you,

Dennis

[BOB W]

Dennis..............

....... it all depends on how the $108,000 was recorded originally. I usually show very low contribution to capital and the rest to "Loans from Officer'. The $45,000 would just be a repayment of that loan..

If you capitalized all of the $108,000 and the corporate return has not been filed yet, I would restructure the original contribution.

[DTS]

Loans

Bob,

The return has not been filed, yet. I'll do as you suggested.

One follow-up: Should I possibly show something like $20,000 and the rest as a loan, if he continues to do this? After reading your reply, I called him to see if he is going to continue this, which I don't believe he will, according to what I was told initially. I will post, again, when he calls me back.

I appreciate your thoughts on this.

Dennis

[ChEAr$]

You can't "show" anything except....

Bob,

The return has not been filed, yet. I'll do as you suggested.

One follow-up: Should I possibly show something like $20,000 and the rest as a loan, if he continues to do this? After reading your reply, I called him to see if he is going to continue this, which I don't believe he will, according to what I was told initially. I will post, again, when he calls me back.

I appreciate your thoughts on this.

Dennis

what the case is. Look to the original documents and find out how much stock was
issued (not just authorized). How was the value of it recorded at the time?
(Or was it? grin)

The opening books of any corporation, i.e. day one, is when the capital stock value is
recorded, not the last day of the tax year.

[DTS]

ChEAr$

Thank you for clearing this up for me. I reread my post and, as usual, I did not word it properly. I made it sound like I could configure circumstances to suit my client's or my needs. This was not my intent.

My client has not returned my call, yet. I will confirm all the info again to be on the safe side. I did not mention that the initial capital was $8,000.

Dennis

[BOB W]

what the case is. Look to the original documents and find out how much stock was
issued (not just authorized). How was the value of it recorded at the time?
(Or was it? grin)

The opening books of any corporation, i.e. day one, is when the capital stock value is
recorded, not the last day of the tax year.

In real life, we do what need to be done to protect our clients. First year adjustments are not a problem, even if it requires restating opening issues.

Second year is another issue. In Dennis's case I never would of issued that much to capital.

[OldJack]

A return of capital with an S-corp can be just that.... a return of capital. Of course capital has to be returned on a per share basis to all shareholders. In most cases it does not have to change the number of shares issued. In other cases the stock can be redeemed and or re-issued. Its not a big deal.