David

TP worked in Canada several years and has been back in the US since 2014 with the same employer. He has a big FTC carryforward that will not be used. Is he able to deduct the remaining amount on Sch A in 2015? I wouldn't think so since he is a cash basis TP and the taxes were paid in 2014 and prior years. I thought I would check to see if there was any way for him to deduct those taxes instead of carry forward for years. Thanks.

He sold his assets to one company. The goodwill is from the sale of assets. That's how I treated the small tools and equipment. I reported the goodwill on Sch D. Thanks for your help.

Small tools and equipment.

S Corp SH had an asset sale in 2015 and took a truck and some other small items. He took sec. 179 deduction for the truck (up to $25K) and all other assets. I want to confirm that there will be a book vs. tax difference regarding the gain from sale of assets. This is because the truck and other assets transferred to him will show a gain for tax purposes since the assets will be reported as sold at fmv. Books will show a loss since no sale actually took place. Regarding reporting transferred assets to a SH as though they were sold at fmv - do all of you report that? Or do you transfer assets at no sale price? Thanks.

S Corp owner had an asset sale in 2015 and closed his business. I disposed of the assets that were capitalized. All took sec 179 so I know the 179 report will be used by the SH to report on his personal tax return. Where do I report the gain from sale of non-capitalized assets and gain from sale of goodwill so that the TP will be taxed at the LTCG rate? I am using ProSeries, if that matters. Thanks for your help.

Thanks so much for the articles. I haven't read through all of it yet but hopefully it will address all my questions, especially regarding filing Form 8308 and how to record the negative equity related to the departing member. Thanks.

The LLC is taxed as a partnership and the company paid her the $50. The company is taxed on cash basis accounting, so no inventory or receivables are reported on the tax return balance sheet. Therefore, there aren't any "hot" assets involved and Form 8308 doesn't need to be filed - correct? Is the exiting LLC member's negative equity balance (draws) just transferred to Retained Earnings? Thanks.

To be clearer on my previous post - the net equity for the departing member is negative. Does this net negative equity get flushed to Retained Earnings? I just found out from the client that the $50 payout to the exiting LLC member wasn't paid until 2016. Since the company reports cash basis for tax I guess this won't be the LLC member's final K-1. The 2016 K-1 will show no income but only the distribution. I guess it will be up to the departing member to calculate he gain/loss on her tax return for 2015 and then report a $50 gain in 2016? Thanks.

LLC member terminated her interest as of 12/31/15. The equity section of the balance sheet shows the following for her: $8K Investment (43)K Draws Her allocated portion of Retained Earnings is $33K, which doesn't offset the negative $35K Investment and Draws. She was paid $50. My understanding is that the $50 should be reported as a distribution to her and she determines how to report her gain or loss on her personal tax return. Is this correct? Also, how does the liquidating interest get reported in the company's QB? Does her Investment and Draws balance get flushed to Retained Earnings? Thanks.

The penalties for S Corps are harder to get abated anymore. If you have had success please give us your secret. :-)

I think you're right about that. Usually the IRS would send a letter saying that the 2553 wasn't signed and to send back a signed 2553. The TP said he never received a letter from the IRS. Since there was no activity in 2014, I thought I would file the extension as any other extension that was planning to file a late S election. That being, mark the tax return as the corporation is electing to be an S Corp the beginning of the year. This has always worked in the past. I don't know why it isn't working in this case. If I file an 1120 extension, won't the TP incur late filing S Corp penalties even if we later file an 1120S with a late S election? That's what I am trying to do. File an extension so the TP won't incur late filing penalties. So if I file a paper extension for both the 1120 and the 1120S won't I have the same problem - the IRS will accept the 1120 extension and not accept the 1120S extension? Therefore, the TP will still incur the S Corp late filing penalties, won't he? Thanks for your help.

Yes, agree. So why is the extension being rejected? I marked the return as the first year for S election. That usually works for late elections.

Yes, that's why I e-filed the extension. My question is what is the best way to cure the e-file rejection. I have until the 20th.

Whoops! I meant to say that I filed the 2014 1120S on 9/15.

S Corp started in 2014 and had no activity in 2014. I filed a 2014 zero return and attached Form 2553. The IRS accepted that e-filed tax return. I could never get the client to send a signed 2553 since he was out of the country and out of town quite a bit. I filed on 10/15 and decided to attach the unsigned 2553 knowing that the IRS would send the TP a letter stating that they needed a signature on the 2553. According to the TP, he never received a notice from the IRS asking for his signature. The IRS evidently recognizes this entity as an 1120. I marked the box stating that the corporation is electing to be an S Corp beginning this year but the extension is still being rejected. Should I e-file the extension now as an 1120 and later file the tax return as an 1120S with late S Corp election? Or will the TP incur S Corp late penalties? Or should I paper file the extension with an explanation that the S Corp election was filed last year and attach a signed 2553? Thanks.

Thanks. I agree. The client's method of accounting is accrual basis on the book basis of accounting. They are savvy enough to realize that there is a difference between book and tax depreciation.

Thanks for helping with this. I just recalculated the equity and it isn't off by $103K. It is off by $3K. My apologies. The $3K difference is the difference between the 2014 AP book balance vs. tax balance. The tax balance is higher. I looked in the company's QB file and didn't see anything in 2014 that would account for this difference. The client won't know why the tax preparer has a different amount. So most of the difference is due to the tax vs. book depreciation. If I include a statement that says the balance sheet has been converted from tax basis to book basis and the differences are due to the sec 179 vs. book depreciation, do you think that will fly? Or is the $3K a big deal? The book equity is $1.1 million and the tax equity is $500K. The equity difference is $623K with $620 being book vs. tax depreciation differences and $3K being the AP balance. Thanks.

So even though Schedule L is titled Balance Sheet Per Books, the IRS doesn't have a problem with reporting the tax basis?

I meant to also add to my last comment.... and explain in my statement that the previous balance sheets reported tax basis balances instead of book balances? And just leave it at that? Thanks.

Yes, I prefer to report this way. However, in this case, since the previous tax preparer didn't report this way, how have you handled changing the beginning balance sheet amounts? And would you address the difference between AP and equity or would you simply report the client's beginning balance sheet amounts? Thanks.

Does the company have financial reporting needs with outsiders? If not, it might be easier to convert the book accounting to tax basis reporting than the other way around. Currently they have no outside reporting needs. However, they are a manufacturing company and there may be requirements down the road for a financial review due to LOCs or other loans. They have loans now but aren't required to have a financial review. I will have to check with them to see if they are required to submit their financial statements. When you say convert the book accounting, do you mean that instead of recording book depreciation they will record tax depreciation? This is what a lot of smaller companies do but this is a larger company and they actually calculate book depreciation and prefer to record that instead of what the CPA reports on the tax return. Yes, I agree that would be a lot easier. But it probably wouldn't work to change what they are doing just to match how the prior tax returns were prepared.

New S Corp client has been in business since 2008 and uses accrual basis. The 2014 balance sheet in the tax return doesn't equal the balance sheet per the books. The main difference is the book income and accumulated depreciation reflect sec 179 deductions. For example, the balance sheet on the tax return shows fully depreciated fixed assets and doesn't reflect book accumulated depreciation. Do any of you report the balance sheet this way? I am used to reporting the balance sheet per the books and reconciling the book vs. tax income by reporting book depreciation. I am thinking of changing the beginning balance sheet numbers to correctly report the 2014 balance sheet per the client's books. I guess I will need a statement explaining this, however I don't want this to backfire. The difference between the total assets is the difference between sec 179 vs. book depreciation. So no problem explaining this in a statement. However, the accounts payable per the tax return is $3K greater than the book amount and the equity per the books are $103K greater than the tax return after adjusting for the book vs. tax depreciation amount. I don't have time to find out what these differences are and the client doesn't know. I wouldn't think my explanation would be sufficient to simply state that I am changing the beginning balance sheet amounts to reflect the balance sheet per the books, would it? I can explain that the major reason is the book vs. tax depreciation. However, there is the AP and equity differences. How have those of you who have had this situation handled it? It would be easier to continue reporting as in the past and be consistent. But shouldn't the balance sheet in the tax return match the balance sheet per the books, or is this not important? Thanks for your help.

Thanks, everyone.

S Corp single SH client now decides that he isn't a financial advisor but is an insurance agent. I have used the same business activity code and business description listed on his 1120S prior to picking him up as a client. Is it as simple as changing the business activity code and description on his 2015 1120S or do I need to file some other form advising the IRS of the change? If I simply change the business code and description on the 1120S, will that raise IRS eyebrows? Thanks.

The W-2 for a S Corp officer correctly shows the health care premiums paid for the officer in box one. The same amount is reported in box 12 code DD. I usually see this reported in box 14 with a description of something like S Corp Officer Med Premiums and a dollar amount. The bookkeeper is preparing a W-2C because the health care premiums weren't reported correctly in the original W-2. She sent me a copy of the new W-2 with the code DD reported. Is this correct or does it matter whether it is reported in box 12 or box 14? Also, the company paid all of the officer's HSA contributions for $6,500. The W-2 shows this in box 12 with code W just as it would be reported for a regular employee. Does the HSA contributions also have to be reported in box 1 or is the W-2 correct to report it with code W? Thanks.