IRS Says Personal Expenses Paid by S Corp. Not Loan Repayments

Irs Says Personal Expenses Paid By S Corp. Not Loan Repayments

If a Subchapter S corporation pays its shareholders personal expenses, can the payments be for the repayment of loans not subject to employment instead of wages subject to employment taxes? This is a common issue that has to be addressed when preparing S corporation tax returns. The IRS addressed this in AOD 2017-04 disagreeing with…

S Corporation Owner Who Didn’t Receive Distribution Subject to Tax

S Corporation Owner Who Didn’t Receive Distribution Subject To Tax

Taxpayers who own an interest in an S corporation but who are not familiar with the tax rules are often surprised to learn that they have to pay tax on the business profits even if they do not receive distributions from the business. The court recently addressed this fundamental concept in Dalton v. Commissioner, T.C.…

Subchapter S Corporation Losses Limited by Tax Basis

Subchapter S Corporation Losses Limited By Tax Basis

One of the benefits of Subchapter S corporations is the ability to have losses flow through from the business’ tax return to the individual shareholder’s tax return. These flow-through losses are limited by the shareholder’s tax basis in the S corporation stock. The court recently addressed this limitation in Tinsley v. Commissioner, T.C. Summary Opinion…

Deducting Back Taxes in Current Year for Defunct Business

Deducting Back Taxes In Current Year For Defunct Business

Can an S corporation shareholder for a defunct business pay unpaid taxes in the current year, and have the defunct business deduct the payment in the current year?  The court addresses this in Brown v. Commissioner, T.C. Memo. 2017-18.  Most business owners may miss this deduction given that the business is no longer operating. Facts &…

S Corporation Owner Subject to Self-Employment Tax

S Corporation Owner Subject To Self-employment Tax

Taxpayers often establish Subchapter S corporations to avoid Social Security and Medicare taxes on a portion of their earnings. This is a very common arrangement.  The Fleischer v. Commissioner, T.C. Memo. 2016-238, court case provides an example of how the Subchapter S corporation must be structured to avoid these taxes. Facts & Procedural History In Fleisher, the…

Using a Subchapter S Corporation to Reduce Payroll Taxes for a Sole Proprietorship or Partnership?

Using A Subchapter S Corporation To Reduce Payroll Taxes For A Sole Proprietorship Or Partnership?

Sole proprietors and partners who provide services to their partnership business have to pay self-employment taxes on the income they earn from the business. Self-employment taxes include Social Security and Medicare taxes. The owner of the sole proprietorship is then able to deduct one half of this amount in determining his federal income tax liability.…