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AdminBooks Newsletter

S-Corp Checklist

Renee Daggett - Wednesday, May 10, 2017
I would have to say S-Corporations are my favorite entity.  Why?  Because the entity has many options and advantages.  Some of the advantages are that they have a liability protection, if the business operates legitimately, as well as no double taxation with distributions and losses typically reduce other personal income.  Here is a checklist that every S-corp owner needs to review and understand:

General:

□   Must have a Board of Directors and Officers.  This can be 1 person.  The Officers are involved in the daily activity of running the business and MUST be on payroll. 
□   The corporation MUST have annual minutes.
□   Shareholders are required to track their basis each year.  If you don’t know what this is, check with Admin Books. 

Officer Payroll and Contractor Payments:

□   Payroll for the officers MUST be reasonable.  If line 7 of the tax return is small or zero, the IRS will dig further.
□   Separate out Officer Wages from employee wages on your financial statements.
□   Make sure you get tax identification numbers on all independent contractors.  Have each contractor fill out a W-9, sign an agreement, invoice you and they MUST have a business license.  Don’t forget the 1099 due every January for the previous year worked. 

Insurance:

□   If the business pays for health insurance premiums for the owners, the amount MUST be included in box 1 of the W-2.  Make sure the payroll and insurance amount is reflected in the Officer Gross Wages line of your financial statements.
□   If you pay health insurance for your employees, there is a nice credit you can take on your business return if you qualify.  You must have less than 25 employees, making an average of $50,000 or less per year. 
□   Life insurance IS NOT a deduction for the business when a shareholder owns more than 2% of the company. 

Bank and Credit Card Accounts:
□   Have SEPARATE bank and credit card accounts for business transactions and personal transactions; DO NOT CO-MINGLE personal and business expenses.
□   If there are deposits in the bank account that did not come from customers/clients, make sure these loans are posted on the balance sheet and NOT in your income total. 
□   Reconcile all bank and credit card accounts through the end of the year so there are no un-cleared transactions in the register.  If there are, your income or expenses can be overstated, meaning they are wrong!

Business Expenses:

□   If the owners use their home exclusively and regularly for business, they can deduct expenses for a home office.  Add up what is paid in rent, utilities, HOA and insurance.  No deduction is taken for mortgage interest or property taxes – these are taken on the personal return. 
□   Auto deductions are based upon the percentage used for business.  It is best to track your actual costs (gas, repairs, insurance) with the miles driven. 
□   Charitable contributions are deducted at the personal level, not at the corporate level.
□   Review the travel expenses.   Make sure you separate out any personal travel.  Count every travel day that you worked more than 4 hours.  Save any books/handouts
from conferences.
□   All meals are 50% deductible, even those meals that were eaten on a business trip.    
□   You cannot claim a “bad debt” expense if you did not file a tax return showing it as
income originally.
□   When you pull a Profit and Loss statement in QuickBooks, what amount shows on the “Net Ordinary Income” line?  If it is a large profit, you need to strategize.  Modify the report to compare with last year’s numbers to get an idea of what the current year will be. 

Assets and Liabilities:

□   Know when to depreciate assets over a period of years (3, 5, 7) or when to take the deduction all in one year.  For 2013, the total amount that can be taken is $159,000.  The assets must be new, not used.
□   If the shareholder loans the company money, there must be a signed note showing this agreement.  If the note is over $10,000, interest must be paid and a 1099-INT document needs to be issued.

If you need bookkeeping assistance Admin Books can review and clean up your QuickBooks file so it’s ready for the tax return!    

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