A few simple(?) questions about small business accounting

Hi All,
I'm a small business (S Corp) owner with a few questions. Hopefully I can get some free advice here!
1) I have heard that it's good to run as many expenses as you can through
the company, personal or business: utilities, car payments, mortgage, meals, etc. This then shows up as an expense for the company.
In the eyes of the law, is this illegal, or cheating? Should the money first come to me via payroll, then I disburse it for my personal expenses? It seems that this method avoids paying any tax whatsoever on this hypothetical "income".
2) I'll consult an accountant about this, but what happens if your S Corp shows a profit? Is that money taxed as income, and then retaxed if disbursed as payroll?
I guess that's it for now. Thanks for your help!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
-----BEGIN PGP SIGNED MESSAGE----- Hash: SHA1
The Chairman wrote:

Not a good idea. Run all of your legitimate business expenses through the corporation. DO NOT run your personal expenses through the corporation. Except for those items specifically allowed Your personal expenses are not deductible -- regardless of who lays out the money.

If your personal expenses are not allowable and you deduct them you may get away with it, but if you are audited by the IRS you will regret it.
Sorry, but it isn't hypothetical income -- it is real income and subject to taxes. The one break you get is that the profits of your S-Corp are not subject to federal (and possibly state) income tax.

Please do consult an accountant.
If your S-Corp shows a profit it is not subject to corporate income tax. Instead it is distributed to the shareholders as income and is subject to personal income tax.

-----BEGIN PGP SIGNATURE----- Version: GnuPG v2.0.4-svn0 (GNU/Linux) Comment: Using GnuPG with SUSE - http://enigmail.mozdev.org
iD8DBQFHq91wOaQSGSB4e8ARAuEDAJ43p+P+nhK+U7fxtOCxX9TNMLQ1gQCfc+zi n3hThJh11N9vhV+THO01j80=o6QR -----END PGP SIGNATURE-----
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Fri, 08 Feb 2008 00:35:03 GMT, The Chairman wrote:

The good news is that business expenses are deducted dollar for dollar for AGI, which means that your AGI is not computed until after the expenses are deducted. Individuals can only deduct certain expenses from AGI at full amounts, other expenses are subject to AGI floors. In general, personal expenses are not deductible and should certainly not be categorized as business expenses.
--
Work fascinates me. I could sit and watch it for hours.

snipped-for-privacy@gmail.com
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Thanks to both of you for the responses. The original post was borne of a discussion I was having with another business owner.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

It's cheating, and illegal, and could be considered criminal fraud.

That's probably the prefered method.

But it's not hypothetical. It's real.

"S" corp profits (after owners payroll) or losses flow through to the shareholders tax returns.
The net of the profit/loss and the owners wages will remain the same (or there abouts).
Here: S profits if there were no owner wages = $50,000 which flows to the owners 1040 via a K-1 from the corporate return.
S profits with $30,000 of owner wages = $20,000. The $30K gets reported as wages like any other W-2 wages. The S profits of $20K flow to the owners 1040 via the K-1 from the corporate return.
In both cases the net taxable remains the same.....$50K. **I'm ignoring the impact of payroll taxes for simplicity**
Take an S loss of $10K after owner wages of $60,000. The $60,000 gets reported as wages on the owners 1040, the loss of $10K flows to the owners return via the K-1 from the corporate return. Taxable income remains $50K.
--
Paul A. Thomas, CPA
Athens, Georgia
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.