Converting to S corp

[oceanlovin'ea]

Client started a business as a schedule C during first part of year. Then in August (middle of month) set up S corporation.

Duriing the beginning months of business, she purchased furniture and equipment for the office. I was going to section 179 the assets she purchased on the schedule C. But now I am thinking that it would be better not to do the section 179 until after I transfer the assets to the s corporation. Then there would be an actual value of the assets to transfer to the corporation. Same bottom result on the tax return as far as the deduction.

Am I thinking along the right lines? Been a while since I converted a business that was in operation to a s corporation.

Thanks.

[JAinNC]

If the assets were purchased while a sole prop., shouldn't the assets be depreciated (or Sect 179) beginning date placed in service? If business was incorporated in August, then anything place in service after that time is filed on the 1120 or 1120S. You will have a
Sch C for until Aug when the corp was form and the corp return for the remaining months of 2007. Then in 2008 the businesses will be merged for the calendar year.This is how I handle this situation.
Jeannie

[JAinNC]

If the corporation was not formed

until August - is that allowed? How can you elect S status to become effective months before the C corporation existed?

Jeannie

[ChEAr$]

I agree

until August - is that allowed? How can you elect S status to become effective months before the C corporation existed?

Jeannie

How indeed, when the corporation didn't even exists until charter was granted by
the state?

[jimmcg]

There are several Rev Proc's that deal with remedying late filed elections but not back to a period prior to Corp. formation.

[oceanlovin'ea]

Made me think

You made me think and that is what I was hoping would happen.

She was a sole proprietorship for a few months before incorporating. Never a c corp. I was just trying to figure out how to transfer the assets to the corporation as part of her paid in capital.

You are right about the section 179. They would have to be expensed on the return that was applicable for when they were purchased. So I will have to do the sect. 179 for the sole prop.

I think I figured out how to put the assets into the business ( s corp). Right now I am thinking bookkeeping and not tax return.

Thanks

[Matt Sova]

Huh?

Let's see, someone forms an LLC and 8 months later they decide they want to be treated as an S-Corp for tax purposes. No CORPORATION paperwork EVER filed can it be done? Yes it can.

Someone starts a business on January 23rd. They have an appointment with their attorney to set up the corporate paperwork. They meet on February 8th. The work is done on March 14th. Client sends in the corporate paperwork to the state on March 18th. The state accepts the paperwork on June 3rd. Can they elect S-Corp status on January 23? In your scenario, no they can't because they were not legally a corporation until June 3rd. However, in the real world, they can and will be accepted as an S-Corp on 1/23.

I have had 2 S-Corp audits in my life. Fairly young companies and the one thing the agent wanted to see in both cases was the IRS acceptance letter of the S-Corporation, nothing about corporate documents and when they were filed.

But, if you wish, you can have you client pay in SE Tax on the beginning of the year and charge them extra for doing a Schedule C and an 1120S for the same year. It is up to you.+

[JAinNC]

Can you state a reference, other than 2 audits, to back that up? In the question by Linda F, her client started a business at first of year and then formed a corp in mid August. Sure it might be easier to treat it as beginning on Jan 1. What law says you can? I don't think intentions would come close to being the decision maker in this case.
Jeannie

[Bees Knees]

Can you state a reference, other than 2 audits, to back that up? In the question by Linda F, her client started a business at first of year and then formed a corp in mid August. Sure it might be easier to treat it as beginning on Jan 1. What law says you can? I don't think intentions would come close to being the decision maker in this case.

Form 8832 says you can (see TTB page 18-14). A sole proprietor is a disregarded entity, but it can elect to be taxed as a corporation even if it did not file incorporation papers with the state. If you want S corporation treatment, the Form 8832 instructions tell you to file Form 2553 instead of Form 8832.

So in other words, regardless of whether or not you are incorporated under a state charter, or you are currently a 1065 partnership, or a Schedule C sole proprietor or LLC, you can file Form 2553 and elect S corporation tax treatment for your business. The IRS will treat you as an S corporation, and does not care whether or not you actually are a corporation under state law.

[JAinNC]

Thanks again, Bees

You are a great teacher.

Jeannie