Tax Guru – Ker$tetter Letter

I’ve long supported the idea of allowing people to vote for NOTA rather than having to choose the lesser evil. Leaving an elected office empty wouldn’t be any worse than filling it with the kind of spendaholics that we have to choose from.

Taxifornia, here we come – And people get upset at my reference to my former home state on the Left Coast as the PRC?

Accounting students help audit white collar crimes – A great idea.  Why just teach the students about old cases from textbooks, when they can dig in and work on real life ones?  And it’s not like there’s a chance of ever running out of real life cases to work on.  Also, as every real world accountant knows, the hands-on approach will teach the students a hundred times more practical skills than any textbook study possibly can.

Q:

Subject:  C Corp questions

 

Hi,

 

I found your website while researching the following:

 

LLC filing as C-corp question

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Could you please give me some feedback on the best way to handle the following?

1. 2005 1120 was filed showing consulting fees as an expense. The consulting fees were actually paid to the sole shareholder. There is no payroll set up for the corp. How should this be handled on the shareholders return? Any changes for the corp return?

2. Sole shareholder personally owns the truck which is used 100% for this C-Corp. Mileage has previously been claimed on this vehicle in a prior year (before corp) as unreimbursed business expense. How would it be handled now that it is totally used for corp business? Could the C-corp lease the vehicle from him?

3. Home-Office deduction for C-corp? Would it be best to lease the office space to the corp?

Any suggestions are greatly appreciated!

A:

There are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.  There are pros and cons to each of the various options you mentioned, as well as dozens you didn’t.

You will need to work directly with an experienced tax pro who can analyze your unique circumstances. In fact, you were crazy to set up your corp without the advice of a qualified tax pro because s/he could have steered you in the best direction for some things that cannot be changed, such as the fiscal year.

I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time. 

Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.

If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you at.

In regard to the consulting payments made by your corporation to you, you need to report them on Schedule C of your 1040, which, after any related expenses you may have paid personally (+ home office, etc), will be subject to the 15.3% self employment tax.  A good tax advisor can help you find other ways to draw money out of your corp that aren’t subject to SE tax.

Amending things to reclassify those payments as W-2 wages would be a very costly mistake, subjecting you and your corp to a lot of penalties with both IRS and your state tax agency; so it would be most prudent to continue with the way those payments have already been classified, as non-employee compensation (1099-MISC) consulting.

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter

 

From the November issue of Practical Accountant:

What’s Different About Holistic Financial Planning?

Work with Clients To Prevent Fraud

10 mistakes that made flipping a flop – Learning from other persons’ mistakes is a much better way to learn what not to do than making them yourself/. This guy’s venture into get rich quick real estate investing is a textbook case in how to really screw things up. 

Find what your mutual fund fees really are – They’re as sneaky as our rulers in DC are at hiding the true costs.

Figuring IRA Withdrawals When Your Beneficiary Dies, and Essential IRA Records – From Gail Buckner

Corporations vs. LLCs – From Nolo