a few doubts on s corps, home office and accounting

Newsgroups: misc.taxes.moderated,us.taxes,misc.taxes
Hi,
I have a few doubts, and I hope someone can help:
I started an S corporation in CA in Aug 2005, and since
then I have operated this company out of my home. No sales or profit yet, but I am working on that.
I wish to use the cash basis of accounting.
(1) I paid someone $4000 in wages for 2005. But the cheque I issued them was less because of payroll taxes witheld. (~$350)
Since I paid the govt only in Jan 2006, this expense is for 2006, correct ? (~$350)
How do I make the journal entries, and what dates do I put on them?
(2) A phone bill was due on Dec 15 2005.
It was paid using a company credit card on Dec 15 2005.
However, the credit card was paid only on Jan 15 2006.
Is this still an expense for 2005?
Ie, do I treat the credit as a loan from the credit card company?
(3) Since I use a home office for my S corporation, what form do I file for the home office use? I saw a form that said it needed to be filed with schd C, but I am filing 1120S instead.
(4) What publication do I read for home office use by an S corporation ?
In particular, does the company need to reimburse me for electricity use or occasional telephone use?
Thanks!!!
AK in CA
<< ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

This shouldn't be a problem since you state no sales or profit. You may have to switch in the future if you meet certain criteria.

You may deduct the taxes in 2005 even though you are cash basis (I think it's the recurring item exception),

2005 DR Wages $4,000 2005 CR Payroll Tax Withheld $ 350 2005 CR Cash $3,650

Yes. Even though you are on the cash basis, using a credit card is deductible in the year of the charge.

Yes. DR - Expense and CR - Credit card liability

I'm not too knowledgeable in this area, so I won't comment. I have a couple ideas on how to do it, but I'm not sure if they are correct.

Also, not sure about which pub, either.
One caution. You state that you have no sales or profit yet. Have you started business? If you have not yet started business, you may have to capitalize your expenses as start-up costs. The start-up costs can then be deducted (in full, or partially - depending on how much they are) beginning in the year you start business. << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Remember, you and the corporation are separate legal entities; i.e. you are not the corporation and the corporation is not you. Thus, the corporation cannot have a home office; it has no home. You, as an employee of the corporation can be reimbursed for the home office expenses - in addition to the salary the corporation is paying you. Or, you can deduct those expenses as unreimbursed employee expenses using Schedule A of Form 1040. In such case, of course, the salary should be large enough to cover those expenses. It appears to me that you do not have a real grasp of the corporate structure and the rules that apply to S corporations in particular. I would strongly suggest that you consult a tax accountant for the first year or two to be sure you are getting thigns right. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
<< ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

It sounds like you haven't actually started your business yet but rather are in the startup mode. Therefore, you'll capitalize all of the expenses listed above as part of your startup costs and amortize over the appropriate term once you begin your business. See IRS Publication 587 re business use of your home. << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

The instructions for page 2 of Schedule E indicate a partner can put UPE (unreimb partner exp) on the partner's return under certain conditions. However, no such statement is made for S Corp owners. I don't know if you can take a home office for an S corp, and, if you could, you would probably have to rent it to the S Corp and report the rent income on Schedule E, page 1. It would be a wash-out unless you had a 'rental loss.' You cannot depreciate something you don't own, and your S Corp does NOT own your house, you do. It would not be handled the same as a Schedule C business owner would be able to do it. << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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.