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How are taxes calculated in an S Corp. and can I write anything off?

Los Angeles, CA |

In the second half of 2010, I formed an S Corp. to use as a loan-out company for my son who is an actor. Between Oct. of 2010 and Dec. of 2011, he made over $400k working on a show. The show was filmed in another state so our family relocated during this time. Can any of our expenses during our time there be written off? We were there for business purposes and had to rent an apartment, pay utilities, etc.

Also, what exactly does it mean when you are able to "write" things off?

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Attorney answers 4

Posted

You indicated that you formed and S-Corp. If your son made over $400,000.00 in revenue, you should hired a professional to assist you in the formation, operation and tax preparation matters of the corp. You probably did not prepare the appropriate corporate documents to authorize the corporation to deduct certain business expenses which you believe are ordinary and necessary to the Corp. otherwise known as writeoffs.

You now should have hundreds of thousands of dollars in receipts which it appears that you are unsure can be "wrriten off." You need to see a tax attorney to determine if your S. Corp. is properly structured, and an accountant to prepare your S, Corp. tax returns. Your 2010 corp. tax return is deliquent if it has not been filed.

Give me a call if you have some specific questions that need answers,

Good luck!
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Call: 855 IRSTAXBIZ

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.

Asker

Posted

Mr. Smith, thank you for the advice. I actually have an accountant who set everything up for me. I am not well versed in this subject so I am essentially seeking a second opinion to ensure that the information I recieve from him is correct. The corporate taxes for 2010 have already been filed. He is currently working on the 2011 taxes.

Phillip Monroe Smith

Phillip Monroe Smith

Posted

Ask your accountant for a draft of the tax return and have it reviewed by another professional. The crucial thing is many of the corporate matters is whether 1) there were corporate minutes authorizing certain transactions and 2) employment agreements and payroll taxes paid on your sons and your family earnings from the corp. If the corporatate formalities were not followed, the deductions could be disallowed resulting in unnecessary taxable income to your son and your family.

Asker

Posted

Ok. I'll do that. Thanks again!

Posted

Attorney Smith is correct. You should know these things going in because your entity is properly structured and the proper records are being kept. Too many people create the entity to get deductions, but then they do not run the entity in a way that allows for said deductions.

You need a re-write, and if you haven't filed for 2010, you NEED to do so. Not knowing how to deal with something tax related can cause you to pay 150% of what you actually owed once the non-filing and non-payment penalties accrue. Better to spend a few bucks on a professional than 5 times that on interest and penalties.

Christopher Larson
Insight Law
www.insightlawfirm.com

Posted

If your son made that income, why are you asking for fee legal advice? Get a CPA and ask your questions. Your questions are so basic and the answers are so vast and extensive that it will irritate almost every attorney reader.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

Michael Charles Doland

Michael Charles Doland

Posted

I reread my answer. I don't mean to be angry, but you and your son could benefit from so much good advice, such as setting up tax deferred college accounts, qualified pension plans, and so many other ways to prepare for his future, that you should "invest" some of this money in top of the line advice, and not settle for quick questions that miss the "big picture."

Asker

Posted

How do you know that all of what you said hasn't already been done. I asked a question about a spefic topic...S Corp taxes. I'm just basically trying to see if the information I'm getting from my accountant is correct. A second opinion if you will. If the question irritates you, simply don't respond.

Michael Charles Doland

Michael Charles Doland

Posted

Perhaps you are correct. The question you asked, however, was not "specific" - it was "what does it mean "write things off". That would indicate a person who has neve met an accountant.

Asker

Posted

The question was "Can any of our expenses be written off?" Sounds pretty "specific" to me. And if you are qoing quote me, you should be correct. I asked what "exactly" does it mean to write things off. As in a clear explanation. Further more, whether or not I have an accountant is irrelevant. Is this not a site for asking questions?? I asked a question. If you don't want to answer it, don't.

Posted

Although I am not a tax attorney, I work closely with my tax partner and can share some broad principles. First, congratulations to your son. I gather he has been sufficiently successful to gain his union card and to command something more than the standard minimum. I know that can be a real challenge and not everyone is so successful.

As to the business, you generate a certain amount of income. That income is taxable. However, in determining the amount of taxable income, you take the gross income and subtract ordinary and necessary business expenses. Generally that means the expenses that you had to incur to generate the revenue.

For example, if I have to travel to see a client, I can deduct the cost of getting there whether by plane, train, or automobile. I can deduct hotels and meals (although meal deductions are reduced). If I buy a copier for my office, I can deduct the cost of the copier. Depending on circumstances, I may be able to deduct the entire cost or I may have to depreciate it and deduct some fraction of the total cost each year over a period of time.

For employees who work away from their "tax home" substantially all costs of being away are deductible, from rent to dry cleaning. For example, if a construction contractor has to temporarily relocate for a job, he or she can deduct substantially all expenses during that period to the extent he or she is not reimbursed. This assumes that the job is truly temporary and the contractor has a residence in a state that is his is "tax home," i.e., where he votes, pays state tax, has family, etc. and to which he returns.

In your case, I do not know enough about the relationship of the company to your son's work so I cannot speak to the costs about which you inquire. I think you would be well served by consulting with an accountant regarding those matters. If the costs are ordinary and necessary business expenses for the S corporation, then you may be able to offset the costs against income.

One other caveat. To the extent you enjoy profits, you must pay yourself or others who work for the corporation and own part of it a reasonable salary. Monies paid out in excess of the reasonable salary may be treated as a type of dividend. Here again, you should consult with an accountant with experience dealing with S corporation.

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