Moving from small business to turbotax business

Answers

– Was this a sole proprietorship or single member LLC prior to S-Corp?  it was a single member llc, now its me paying my self a real salary and filing as s-corp

– Does the business have any assets that are being or have been depreciated? maybe a few I think I took the full immediate amount though vs an over time thing.

– Does the business have any inventory? no

-Does the business claim any vehicle use, even if less than 100% business use? (Let me know if less than 100% business use)  

I do claim mileage only for business purposes.

-Does the business have any outstanding debt?  no

-Does the business have any outstanding unpaid liabilities (such as unpaid bills already sent to clients/customers.) ?  no

Sounds like personal stuff and property will at least carry over to the premier? good

Also good to know business will be like from scratch.. any tips?

Thanks in advance.

So I’m going to assume that you do “in fact” have some business assets on the SCH C listed in the Busienss Assets section of the program. The fact you may have taken the SEC179 deduction and/or Special Depreciation Allowance that allowed you to fully depreciate any asset in the first year of business really doesn’t matter. It’s list a listed asset that must be account for in this transition. We’ll start by dealing with the single member LLC reported on SCH C first.

Basically, you are going to report the LLC as “closed, sold or otherwise disposed of” on your personal 1040 tax return. You will report all business income received by the LLC and business expenses paid by the LLC the same as you have in the past, up to the time of “closing” this LLC. The date of the closing “must” be at least one day before you “opened” the S-Corp. The S-Corp is considered to be open on the date your S-Corp registration with the state says its “active”. It’s important that the close date of the LLC and the open date of the S_Corp not be the same, and they definitely can’t overlap.

So start working through the business and select the option for “I closed, sold or otherwise disposed of this business in 2018” and then keep working things through “as if” you still have that business open.  Work through the business income section, then the business expenses section.

Next for the Business Assets, you’ll work through each asset one at a time and when prompted select YES on the screen that asks if you “stopped using this asset in 2018.” After clicking YES, one or two screens later you’ll be presented a screen asking “Special Handling Required?” You must select YES on that screen. If you select NO then you will be prompted for sales information on that asset. You’re not selling the asset. You’re transferring it to your single owner S-Corp. So basically what you will be doing is removing the asset from the business for personal use. (Later, you will add the asset to the S-Corp as a capital contribution.)  

Finally, work through the Business Vehicle Expenses section and show that vehicle as removed for personal use.

Then complete working through your business in it’s entirety. Once done, you will need to print out a hard copy of the IRS Form 4562 for all business assets. There will be two 4562’s and they both print in landscape format. One is titled “Depreciation and Amortization Report” and is the really important one. The other is titled “Alternative Minimum Tax Depreciation” and you “might” need it for the S-Corp return later. So you print it just in case you do need it.

At this point, you can go ahead and finish working through the rest of your personal return if you like. Just be aware that you can not file it until “AFTER” you have completed and filed the S-Corp return. The S-Corp will be issuing you a K-1 for your RMD as well as a W-2 if you are also an employee of that S-Corp (which you can be.) You’ll need those documents in order to “complete” your personal tax return.

Next, you’ll fire up TurboTax Business 2018 and start your very first S-Corp return. The capital contributions of the assets removed from the LLC for “personal use” will be your personal capital contributions. These contributions can NOT happen on the same date they were removed from the LLC or before that date. They can be before the S-Corp was officially opened, printed it’s after the date the LLC was closed. But the contributed asset will not be “in service” until the opening date of the S-Corp at the earliest.

I’m not sure, but I think that since the vehicle is not 100% business use, you can not add it as a vehicle asset to the business. But you can check me on that as you work through that section of the 1065.

Understand that the IRS does not consider your LLC as “sold, closed or otherwise disposed of until all of the following criteria are met.

– Your EOY inventory must be zero.

– All assets must be shown as sold, removed for personal use, stolen, lost to casualty, etc.

– Any vehicles in the business must be shown as removed from the business either through the sale of that vehicle, removal for personal use, theft, casualty loss, given away as a gift, etc.

If all the above is not true, then the IRS will be expecting a SCH C on your 2019 return. If they are expecting one and don’t get it, then it’s generally 24-36 months later when the “catch it” and send you a nasty gram. You want to avoid that the best you can.

Awsome a lot of great info here..

So when you speak of closing the single member llc.  Im a little confused

which version of turbo tax are you referring to, to do this? 

I only need the two versions to do all of this right?  2018 premier for my self and wife, rental and 2018 business for the scorp?

The llc it self hasn’t closed per say.. its just being treated differently by the irs this year. correct?  I definitely file to do scorp beginning 2018, I thought that was all I had to do ha ..  glad im asking.

Thanks for all the info..

 Im a little confused which version of turbo tax are you referring to, to do this? 

I’m not understanding the confusion. You already know that a single member LLC is a disregarded entity, and that such business income is reported on SCH C as a part of your personal 1040 tax return. So you use the same version you are using ‘RIGHT NOW” to report your LLC income and expenses on SCH C as a part of your personal 1040 tax return. It’s physically impossible to do a personal 1040 return or a SCH C with TurboTax Business. You need either TurboTax self-employed if using the online version, or TurboTax Deluxe or higher of the CD/Desktop version of the program.

To report the sale or other disposition of your single member LLC doesn’t require any special version or anything. Use the same exact version you would use if you were not closing the LLC.

I only need the two versions to do all of this right?  2018 premier for my self and wife, rental and 2018 business for the scorp?

So I take it you use the CD version of TurboTax that you physically install on your computer. You will use premier to report your single member LLC income, expenses, and the closure/disposition of that business on SCH C, as well as for your rental income/expenses on SCH E. THen you will use TurboTax Business (different from Home & Business) to start and report your S-Corp stuff.

The llc it self hasn’t closed per say.. its just being treated differently by the irs this year. correct?

No, that’s not correct. As far as the IRS is concerned ***ON PAPER*** the LLC is closing and will cease to exist. Remember, the LLC is a disregarded entity, whereas the S-Corp is *NOT* a disregarded entity. the S-Corp is considered a completely separately taxable entity. That’s why you are required to file a physically separate tax return for the S-Corp. If your state taxes income, then the S-Corp will also file a physically separate tax return with your state too.

To further clarify, your LLC is a disregarded entity. That means the IRS does not recognize it as anything separate. All income earned by the LLC is considered and treated as income earned by you. Period. That’s why it’s reported on SCH C as a part of your personal tax return. TurboTax Basic through TurboTax Home & Business (or self-employed if using the online version) are all used for filing the personal tax return of a living, breathing human.

TurboTax Business is used to prepare and file a tax return for what the IRS recognizes as a completely separate, non-living, non-breathing, separately taxable entity such as a partnership, S-Corp, C-Corp, Estates, and Trusts.

When you complete your 1120-S corporate return, the corporation will be issuing you a K-1 for you to use on your personal tax return. Additionally, since the S-Corp is considered a separate entity, you can also be an employee of that S-Corp. If so, then in addition to the K-1 the S-Corp would also issue you a W-2. So if you are and officer of the corporation (and you are as the sole owner of it) and an employee, you will need both the W-2 and the K-1 before you can finalize your personal 1040 tax return.

I just remembered something here, and think I may see your confusion. I assume there is confusion because you’ve probably been playing around with the TurboTax Business program. If you haven’t yet, then my bet is you will be confused when it comes time to enter your assets from the LLC into the TurboTax Business program for your S-Corp. So in the hopes of alleviating (or at least reducing) that confusion, Let me give you a realistic scenario that I’m confident will help you to understand just “how it works” here.

– You opened your single member LLC on Jan 1st, 2010 and on that date placed into service a depreciable asset that cost you $20,000. For the sake of simplicity, lets say that asset gets depreciated over 20 years at $1000 each year.

 – Now lets say you “upgrade” your single member LLC to an S-Corp on July 1st, 2018. Therefore you will “close” the LLC on June 30th, 2018.

On the date you close your LLC your asset will have depreciated $7,500. So you remove that asset from the LLC for “personal use” on June 30th of 2018. Furthermore, you complete the process in TurboTax to file what will be your “final” SCH C for the single member LLC.

Now you fire up TurboTax Business to start your very first 1120-S corporate return for the S-Corp. One of the questions you will be asked by the program, is the date the business opened. This date “MUST” be Jan 1st, 2010, as that is the date “the business” opened as an LLC. Then in a separate question you will be asked for your “date of incorporation” (or date of S-Corp status) and you will enter July 1st, 2018. Now you continue working it through to the Business Assets section.

When you enter that asset into the Business Assets section of TurboTax Business for your 1120-s Corporate return, your “date placed in service” ***MUST*** be Jan 1st, 2010, because that “is” the date the asset was placed in service in “the business” before it was incorporated. Then the program will ask you for all prior depreciation already taken on that asset. It’s important you enter the correct number here. Most get it wrong.

To get the correct number take a look at that form 4562 you printed out from the SCH C for that asset. You have to add together the numbers in the “prior deprecation” column and the “current depreciation” column to get the correct figure to enter into the TurboTax Business program for that asset.

So overall, that asset is still deprecated the full $1000 for the 2018 tax year. $500 of that depreciation is taken on the SCH C by the single member LLC you closed on Jun 30th, 2018, and the other $500 of depreciation is taken by the S-Corp that you opened on July 1st, 2018.

See how that works? If you don’t do this right, then you will be taking significantly more depreciation than allowed or entitled to for 2018, and that *will* get your S-Corp audited pretty fast by the IRS.

Moving from small business to turbotax business

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