Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ Schedule your FREE Tax Advisory Session: www.TaxPlanningCall.com
So basically as long as you have no loans you won't ever create a negative cost basis. You could have your numbers wrong like you mentioned. But as long as your bookkeeping is correct you wouldn't have to worry. If you ever entered a negative cost basis you'd immediately know you messed up a number somewhere.
Valid points, Boris, but what you're describing as a "common problem" is something that the market dictates. Just to let you know, I don't agree with this and don't run my practice that way but am simply pointing out the elephant in the room. As you know, depending on the facts, basis may not be relevant to the tax return for a given year. Historically most preparers would not do the additional work to track basis because they would try to keep costs minimal. Quoting a higher price to reconstruct basis often means that the business owner will go elsewhere for a price they deem right. One can't stay in business very long that way. The truth is that any competent return preparer with even cursory training in subchapter K should be able to construct basis but is the client willing to pay for the additional hours of labor? I suspect that the reason why a "tax strategist," I believe you called it, would reconstruct basis is because the client probably values such a professional more than his or her preparer and will agree to different billing/working terms.
I am just filing my 2021 taxes, I am now going through all of my transactions on my bank statements to determine stasis. What about 3rd party business loans? Are they categorized as shareholders capital. I am 100 percent shareholder.
Can you show us how you reconstructed the shareholders basis from prior year returns in a similar situation as well trying to figure out what’s the best way to attack it
Efraim I think I talk about it in this video around 6 minute mark. Generally it’s start with what the business owner contributed to start the business with, plus profit minims distributions.
Your videos are awesome!! Thank you so much. What will happen again next year to Sam if he has another excess in distributions, Can he requests another loan? So Boris, in my case if a have a reasonable salary of $80,000 and my total AGI for the company was 300K. But I took $150,000 in excess distributions, Am I going to pay 35% on taxes on this excess, right? Is it worth it to do a loan agreement for this? Thank you so much for your help😀 I'm a S Corp, just one member and a single tax payer.
If you have to pay 35% on distributions then it doesn't make sense to do a single member S-corp in my opinion :/ The point of the S-corp I believe is to not have to pay a lot in self-employment taxes.
Hi Marisela without knowing ur tax situation in full detail I can not advise but generally doing a loan agreement will reduce your tax liability significantly. I generally recommend a loan agreement ONLY if the business owner has an intention of paying it back to the business. Hope this helps. All the best :)
@@borismusheyevcpa Thank you! I might've used the term excess distribution wrong. But with the distributions you don't have to pay social security tax right?
Is there a good tutorial on how to set up your books (assuming cash accounting and books set up to match tax rather than GAAP) to automatically account for S-corporation shareholder basis as profits, expenses, distributions, and possibly even losses, hit the books. Even better if the chart of accounts makes figuring M1/M2 easy. Accounting articles talk about equity accounts but don't really say how they interact, in practice, with income and expense transactions.
Boris, i filed as a single member LLC and was audited and the IRS only asked for payroll documentation. Now i qualify as an SCorp entitity and pay myself a resaonable salary. Now how much owner distribution can i take out. So i would have to file a K1?? This sounds so good to be true
Great information! I reached out to your office for a consultation. I’m a small business electrical contractor. My question is what is considered business equity and what’s considered owner’s equity. Basically at start of my business I invested say 50k to start a business which includes tools, a work van etc. Now to pay myself back the owners invest that does deduct against “business equity” or is that deducting from owner’s investment. The way I see it is I’d want all my money back that invested into the business that were say hard heard W2 wages that were already taxed
Owner equity and business equity is all the same if u r 100% owner. Ur initial investment in the business which is your equity can be reduced by expenses that the company incurred. If your expenses are more than your income, then this loss will reduce your equity that you initially started the business with.
What’s the tax liability of a s-Corp that posts no profits or even losses in a give tax year? Is there a minimum distribution and salary amount that minimizes tax liability of S-Corp?
Wouldn't the Capital Gains tax be less than the tax on the same amount of money as a distribution, effectively lowering the tax on the income the dentist earned, or is it not considered a long-term Capital Gain at 20%?
I don’t think that’s how the business structure works. He’s only paying taxes on his personal tax return for the salary received. The distribution is an owner draw and is not subject to income tax
He would pay income tax at his effective marginal income tax rate. He would avoid paying social security tax of fifteen point three percent the employer side and the employee side.
Owner draw is a bit of a misnomer for some. Income tax is paid on any net business profit. Under an S-corp you may avoid Some of the social security tax or self employment tax. But flow through net profits are always taxed At the effective marginal income tax rate.
If the owner has been reporting loans that are taken out every year, are all of those years added up which can show the access of the owner's draws? In other words, would the IRS count all those years? Thanks
I have the same question, I took out excess distribution from the SBA loan back in 2021. Would o be able to still reconstruct a shareholders loan for prior years
Hey Boris, I’ve got a small scorp about to start making $100k per year rev. At $20k-$40k profit. I’m looking to bring on investors for working capital to scale, what tax tips do you have?
Investors generally prefer LLC not taxed as an S-Corp or they prefer a c-corp instead. Scorp will limit u as to how u want to distribute out profits and dividends. It is not as flexible. Hope this helps!
Thanks Boris for your video. Very helpful. Can I avail of your services? I have an S-Corp and I live in Southern California. My P&L showed a profit of 48K but this plus 3K of nondeductible meals was reported on my K1. As you know K1 is treated as my income and therefore I have to pay taxes on my personal return. I really would appreciate if I can consult with you.
Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ
Schedule your FREE Tax Advisory Session: www.TaxPlanningCall.com
Replaying, love the info. Didn’t know the owner could receive a loan from the business. Awesome thank you
What an incredibly helpful video
DO you have a video on how to calculate beginning basis
So basically as long as you have no loans you won't ever create a negative cost basis. You could have your numbers wrong like you mentioned. But as long as your bookkeeping is correct you wouldn't have to worry. If you ever entered a negative cost basis you'd immediately know you messed up a number somewhere.
So how would that owner take out excess distribution if the net profit was only that much?
Valid points, Boris, but what you're describing as a "common problem" is something that the market dictates. Just to let you know, I don't agree with this and don't run my practice that way but am simply pointing out the elephant in the room. As you know, depending on the facts, basis may not be relevant to the tax return for a given year. Historically most preparers would not do the additional work to track basis because they would try to keep costs minimal. Quoting a higher price to reconstruct basis often means that the business owner will go elsewhere for a price they deem right. One can't stay in business very long that way. The truth is that any competent return preparer with even cursory training in subchapter K should be able to construct basis but is the client willing to pay for the additional hours of labor? I suspect that the reason why a "tax strategist," I believe you called it, would reconstruct basis is because the client probably values such a professional more than his or her preparer and will agree to different billing/working terms.
Form 7203 has entered the chat.
I am just filing my 2021 taxes, I am now going through all of my transactions on my bank statements to determine stasis. What about 3rd party business loans? Are they categorized as shareholders capital. I am 100 percent shareholder.
Is the loan in the name of the business? @@CryptoQueen8888
Love the idea of Loan to Shareholder! Good tax strategy.
Can you show us how you reconstructed the shareholders basis from prior year returns in a similar situation as well trying to figure out what’s the best way to attack it
Efraim I think I talk about it in this video around 6 minute mark. Generally it’s start with what the business owner contributed to start the business with, plus profit minims distributions.
Would it be too late to reconstruct a shareholder loam from prior years tax return
Your videos are awesome!! Thank you so much. What will happen again next year to Sam if he has another excess in distributions, Can he requests another loan? So Boris, in my case if a have a reasonable salary of $80,000 and my total AGI for the company was 300K. But I took $150,000 in excess distributions, Am I going to pay 35% on taxes on this excess, right? Is it worth it to do a loan agreement for this? Thank you so much for your help😀 I'm a S Corp, just one member and a single tax payer.
If you have to pay 35% on distributions then it doesn't make sense to do a single member S-corp in my opinion :/ The point of the S-corp I believe is to not have to pay a lot in self-employment taxes.
Hi Marisela without knowing ur tax situation in full detail I can not advise but generally doing a loan agreement will reduce your tax liability significantly. I generally recommend a loan agreement ONLY if the business owner has an intention of paying it back to the business. Hope this helps. All the best :)
Jack it’s 23.8 federal plus state and I don’t agree with ur assessments. Most scrip owners do not have excess distributions.
@@borismusheyevcpa Thank you! I might've used the term excess distribution wrong. But with the distributions you don't have to pay social security tax right?
great video,thanks. Assuming you don't take out more than your profit, is it not better to deduct less, to maximize your distributable amount?
Is there a good tutorial on how to set up your books (assuming cash accounting and books set up to match tax rather than GAAP) to automatically account for S-corporation shareholder basis as profits, expenses, distributions, and possibly even losses, hit the books. Even better if the chart of accounts makes figuring M1/M2 easy. Accounting articles talk about equity accounts but don't really say how they interact, in practice, with income and expense transactions.
Boris, you rock!
Thanks for all of your videos.
That was a great video, thank you for putting that together.
How do you take a distribution is excess unless its on credit? Wouldn't your total bank account amount limit your distribution to that 132k?
Boris, i filed as a single member LLC and was audited and the IRS only asked for payroll documentation. Now i qualify as an SCorp entitity and pay myself a resaonable salary. Now how much owner distribution can i take out. So i would have to file a K1?? This sounds so good to be true
Thanks for the awesome tips Boris!
Great information! I reached out to your office for a consultation. I’m a small business electrical contractor. My question is what is considered business equity and what’s considered owner’s equity. Basically at start of my business I invested say 50k to start a business which includes tools, a work van etc. Now to pay myself back the owners invest that does deduct against “business equity” or is that deducting from owner’s investment. The way I see it is I’d want all my money back that invested into the business that were say hard heard W2 wages that were already taxed
Owner equity and business equity is all the same if u r 100% owner. Ur initial investment in the business which is your equity can be reduced by expenses that the company incurred. If your expenses are more than your income, then this loss will reduce your equity that you initially started the business with.
What’s the tax liability of a s-Corp that posts no profits or even losses in a give tax year? Is there a minimum distribution and salary amount that minimizes tax liability of S-Corp?
What if we took out the excess distributions but we used that cash to pay for deductions for the buisness??
Wouldn't the Capital Gains tax be less than the tax on the same amount of money as a distribution, effectively lowering the tax on the income the dentist earned, or is it not considered a long-term Capital Gain at 20%?
😮😮😮😮 ok I need to rewatch this one!!!
Ha ha yes there is a lot of info here
Does deferred income left in savings count as equity in the business?
He would still pay taxes on the distribution on his personal tax return.
512k salary plus the 132k distribution.
I don’t think that’s how the business structure works. He’s only paying taxes on his personal tax return for the salary received. The distribution is an owner draw and is not subject to income tax
He would pay income tax at his effective marginal income tax rate. He would avoid paying social security tax of fifteen point three percent the employer side and the employee side.
Owner draw is a bit of a misnomer for some. Income tax is paid on any net business profit. Under an S-corp you may avoid Some of the social security tax or self employment tax. But flow through net profits are always taxed At the effective marginal income tax rate.
Good
If the owner has been reporting loans that are taken out every year, are all of those years added up which can show the access of the owner's draws? In other words, would the IRS count all those years? Thanks
I have the same question, I took out excess distribution from the SBA loan back in 2021. Would o be able to still reconstruct a shareholders loan for prior years
Oh Snap Boris!
How does one reach out to your team?
Hey @felixlatorre235, you can schedule a Tax Advisory call with us here: www.taxplanningcall.com
Hey Boris, as a first year s corp can I put my salary on 1099-nec and put the rest as distribution? Because I didn’t take any payroll.
Hey Boris, I’ve got a small scorp about to start making $100k per year rev. At $20k-$40k profit. I’m looking to bring on investors for working capital to scale, what tax tips do you have?
Investors generally prefer LLC not taxed as an S-Corp or they prefer a c-corp instead. Scorp will limit u as to how u want to distribute out profits and dividends. It is not as flexible. Hope this helps!
Thanks Boris for your video. Very helpful. Can I avail of your services? I have an S-Corp and I live in Southern California. My P&L showed a profit of 48K but this plus 3K of nondeductible meals was reported on my K1. As you know K1 is treated as my income and therefore I have to pay taxes on my personal return. I really would appreciate if I can consult with you.
Hey Darius! You can schedule your call with us here: www.taxplanningcall.com
If I borrow 1M from sba loan, does that 1M consider business equity?
That's my question!! If I took out excess distribution from the SBA loan, do I have to pay capital gains tax.
Genius
Why don't you write $312,000. Instead you wrote $312?
so don't take more than you profited that year?