Accounting News and Notes

Duluth/Gwinnett/Atlanta CPA Advises Atlanta S Corporation Owners on Deducting Tax Losses

Although there is no income tax paid by as S Corporation when the annual tax return is filed to the IRS. However, as a part of the corporate return which is prepared, a Form 1120S, there is an attached schedule which shows each owners respective ownership percentage and via a Form K-1 for which each shareholder should reflect on their personal return. K-1 profits, losses, and shareholder distributions are all required by tax law to be issued based upon the each shareholders ownership percentage. In order for losses to be deductible a shareholder has to have a positive tax basis, which is a component of past profits, losses, and loans to and from the business. If a shareholder has no basis to cover losses reported on a K-1, they are by tax law considered to be “suspended losses” and can be rolled forward to future years when the shareholder has positive basis, which can be created by future years profits or the shareholder loaning money to the business. Below is a sample letter we might send a client to ensure that to the extent legally possible, that tax basis is maintained in an S Corporation in order to take S Corporation losses:

Got the information you forwarded for your personal return and have already gotten started. Just wanted to confirm my understanding that the $50,000 Credit Line on the company books was done in the company name, rather in your name personally. Please advise/confirm. In the future if you have to get a loan to fund any business needs, if possible, get the loan in your name personally and then have you loan the monies to the business. That way you will have tax basis in the company that will allow us to deduct the losses as reflected on our 2009 K-1 and will not have to roll them forward to 2010/future year returns.

S Corporation  owner’s should report the K-1 profit, which is based upon their share of the business and not the amount of their shareholder distributions. This is a common misnomer about S Corporations and often leads to confusion for the new business owner. To that end it is best to remember that you pay taxes on the profits when you make them and not when you take them. For example generally speaking if your business nets $100,000 and you are the sole owner, you will pay taxes on $100,0000 whether you take zero dollar of shareholder distributions, a $100,000 or any number in between. Thus if you were to have a $100,000 profit in any given year and take no distributions then you would be able, absent any other issues, to take shareholder distributions in subsequent years with no additional tax responsibility as these monies would have already been taxed.

 Bookkeeping for Atlanta Small Business Unleash the power of information by learning the ABC’s of accounting for the business and financial operations of your business. To learn the nuances of Small Business Bookkeeping http://www.hiscpa.com/keeping-books.html

Preparing and Reviewing Financial Statements for Atlanta Business Owners As your financial results of your business are like a doctors chart of their patient, this will help enable you to understand financials and their use. To learn more visit http://www.hiscpa.com/financial-statements.html

http://www.hiscpa.com/article3.html  Gwinnett/Duluth CPA Teaches Personnel Keys to Managing Business Growth

 http://www.hiscpa.com/article6.html  Alpharetta/Roswell CPA Teaches the Tax Effects of Entity Choice

 http://www.hiscpa.com/marketing-efforts.html Norcross/Sandy Springs CPA on Tracking Marketing Statistics for Your Georgia Business And this is only some of the information available on our web site. You also have at our blog a host of other varied and timely tax and business management issues you can use.

John Dillard, CPA of His CPA, PC (An Atlanta Christian CPA firm) 1940 Woods River Lane, Duluth, GA 30097 Phone 770-814-9304 http://www.hiscpa.com/ http://www.john-dillard.com/ To retain John Dillard CPA (An Atlanta Christian Speaker/Author) for your business group or church congregation, you can contact him today at 770.814.9304

Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!

1 John 5:14 This is the confidence we have in approaching God: that if we ask anything according to his will, he hears us.

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Business Acquisitions/Sales, Forensic Accounting, Business Valuations and Bookkeeping.

Gwinnett CPA Teaches Bookkeeping to Metro Atlanta Business Owners & Financial Statement Preparation

Entrepreneurs either initially or over time become extremely proficient in their field of choice for it is by this growth of knowledge and wisdom which affords them the insight to make prudent decisions. Each and every hour of a business owner’s day, there are a series of insignificant and important thoughts and directions that directly impact the profitability of a business. Continually you are faced with making a positive impact towards bringing your business closer or further away from your goal. A company’s financial statement is the measuring stick by which you are able to gauge a company’s progress along the business continuum and are able to accurately measure the distance between where you are and where you want to be. To this end we work with Atlanta Business Owners to Ensure that their bookkeeping stays current, relevant and useful. Below is a sample of what we might sent to a business owner to work with them regarding their internal bookkeeping issues:

Below are critiques to your internal books: 

-Your Inventory Asset account should be zero and not a negative balance.

-Please combine all of the Loans to Shareholder accounts and Distributions account to one account, while correctly classifying it as an asset or liability accordingly.

-You had several debit balances in Credit Card amounts on the Balance Sheet. These should either be a zero or should be a credit balance reflecting the amount owed.

-Please be sure that the credit card balance and all liability accounts are correct and reflect the year-end amounts owed.

-The Opening Balance Equity account should be zero.

-The Retained Earnings account should equal the prior year’s corporate income tax return.

-Please re-class the Other Automobile Expenses account to what it paid for.

-Your are showing both mileage and actual expenses for cars. As you owned a business car for the first part of the year, for that portion you should use actual. For the rest of the year, then you should use mileage. For any excess amounts please charge the difference to the Due to Shareholder account described above and re-class as necessary. 

If you have any questions as you are posting these please do not hesitate to call. After you make the above changes please re-send your Balance Sheet and Profit and Loss.

Bookkeeping for Atlanta Small Business
Unleash the power of information by learning the ABC’s of accounting for the business and financial operations of your business. To learn the nuances of Small Business Bookkeeping http://www.hiscpa.com/keeping-books.html

Preparing and Reviewing Financial Statements for Atlanta Business Owners
As your financial results of your business are like a doctors chart of their patient, this will help enable you to understand financials and their use. To learn more visit http://www.hiscpa.com/financial-statements.html

Contact HIS CPA PC (A Christian CPA Firm) today.

To learn more about tax entities and the taxation thereof visit http://www.hiscpa.com/article2.html There you will also discover a wide host of resources for Atlanta Entrepreneurs.

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer visit http://www.john-dillard.com/ or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!    

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Bookkeeping.

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