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Author: varney Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Some S-Corp Questions Date: 12/19/2000 11:55 PM
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I've been operating as a sole proprietor for 3 years, and have now incorporated and intend to start doing business under the corporate name on 1/1/2001. I have a few questions that I would greatly appreciate help with.

1) I will have a split plan (15% profit sharing + 10% money purchase) for retirement. Do I make contributions to the two plans throughout the year, or after the end of the year?


2) Corporate credit cards charge irritating fees. Can I make business purchases with a personal card and then have the Corp re-imburse me?


3) For meal expenses while travelling, can my Corp employee reimbursement plan choose to simply re-imburse at IRS established Per-Diem rates?


4) I provide consulting services, and my clients have submitted 1099's for compensation paid to me in years past. Will they continue to file a 1099 (or some similar form) for compensation paid to my corp?


5) Do I have to have several separate officers/board members, or can the board consist of only one person (me)?


6) I will have some work completed in 2000 that I may decide to not invoice until 2001. If I do it that way, is that income (in 2001) Sched C income (since I did it in 2000 when I was operating as a Sole Prop) or is it Corp Income (since it is taxable in 2001 when I am operating as a Corp)?


7) Where can I find info on a Corp employee medical expense reimbursement plan?

Thanks in advance

Bruce
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Author: criser Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43139 of 121585
Subject: Re: Some S-Corp Questions Date: 12/20/2000 12:28 AM
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Since I know better nitty-gritty tax folks will answer the tax questions, I'll work on a couple of the legal issues:

2) Corporate credit cards charge irritating fees. Can I make business purchases with a personal card and then have the Corp re-imburse me?

It's not really a good idea from any perspective to commingle personal and business finances. First, you create confusion as to what's a business expense and what's a personal expense. Yes, I know that you think you'll keep it all straight right now, but trust me, you'll get lax at some point and there'll be confusion. Confusion is bad... Also, commingling of personal and business assets (finances) is one of a number of factors that a creditor of the corporation attempting to impose liability on you personally would use to show that the corporation really wasn't run as a corporation but was simply your alter ego.

5) Do I have to have several separate officers/board members, or can the board consist of only one person (me)?

This depends on state law. In many states, there can be one director who is also the sole officer. Other states require there be at least a President and a Secretary. Ask your lawyer (you do have a lawyer -- and an accountant -- yes??).




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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43159 of 121585
Subject: Re: Some S-Corp Questions Date: 12/20/2000 10:44 AM
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I've been operating as a sole proprietor for 3 years, and have now incorporated and intend to start doing business under the corporate name on 1/1/2001. I have a few questions that I would greatly appreciate help with.

1) I will have a split plan (15% profit sharing + 10% money purchase) for retirement. Do I make contributions to the two plans throughout the year, or after the end of the year?

Either; however, your 2001 plan contributions will need to be made by 3/15/2002; your "S" corp. tax return date.

2) Corporate credit cards charge irritating fees. Can I make business purchases with a personal card and then have the Corp re-imburse me?

Certainly. You as an indiviudal, should complete a monthly exepense report & submit it to your corp. for all ordinary & necessary business expenses you incur on behalf of the corp.



3) For meal expenses while travelling, can my Corp employee reimbursement plan choose to simply re-imburse at IRS established Per-Diem rates?

Sure.

4) I provide consulting services, and my clients have submitted 1099's for compensation paid to me in years past. Will they continue to file a 1099 (or some similar form) for compensation paid to my corp?

Depends. A payor is not obligated to complete & file a 1099 when payment is being made to a corporation; although many payors choose to do so anyway.

5) Do I have to have several separate officers/board members, or can the board consist of only one person (me)?

Just you.


6) I will have some work completed in 2000 that I may decide to not invoice until 2001. If I do it that way, is that income (in 2001) Sched C income (since I did it in 2000 when I was operating as a Sole Prop) or is it Corp Income (since it is taxable in 2001 when I am operating as a Corp)?

Actually it can more or less be your choice. The simple solution is to call it corp. income.



7) Where can I find info on a Corp employee medical expense reimbursement plan?

easy way is to check out the bookstore for some "INC Yourself" books which usually have a fist full of draft corporate resolutions in them.

TheBadger


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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43168 of 121585
Subject: Re: Some S-Corp Questions Date: 12/20/2000 1:56 PM
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3) For meal expenses while travelling, can my Corp employee reimbursement plan choose to simply re-imburse at IRS established Per-Diem rates?

Sure.

I've been told here and read in IRS publications that related parties CANNOT user per diems for business travel. Since you own your S-Corp - you can't use the per diems - its actuals only for you.

If I'm wrong - please tell me and explain - It will be a glorious day!!

Helter



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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43169 of 121585
Subject: Re: Some S-Corp Questions Date: 12/20/2000 1:59 PM
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4) I provide consulting services, and my clients have submitted 1099's for compensation paid to me in years past. Will they continue to file a 1099 (or some similar form) for compensation paid to my corp?

Depends. A payor is not obligated to complete & file a 1099 when payment is being made to a corporation; although many payors choose to do so anyway.

I'd be very careful about 1099's - many consulting agencies don't understand taxes very well and are confused by corp-to-corp arrangements. Make sure you sign all contracts as My Name, President of my corp - and provide your corp EIN(tax id) NOT your Social Security Number - if they have your SSN and issue a 1099 - then it looks like you're a sole proprietor and things will be all messed up. I refuse to give the agents/pimps/body shops my SSN for this reason.

Helter



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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43172 of 121585
Subject: Re: Some S-Corp Questions Date: 12/20/2000 2:52 PM
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I said: I've been told here and read in IRS publications that related parties CANNOT user per diems for business travel. Since you own your S-Corp - you can't use the per diems - its actuals only for you.

Here's a quote:
Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. You cannot use the standard meal allowance if you are related to your employer as defined next.

Related to employer. You are related to your employer if:

1. Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant
2. Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or
3. Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.

As owner of your S-Corp - you are in category #2.


This is from publication 463.

Any tax heavyweights want to weigh in?

Helter

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Author: varney Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43217 of 121585
Subject: Re: Some S-Corp Questions Date: 12/21/2000 9:53 AM
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Helter wrote:
Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. You cannot use the standard meal allowance if you are related to your employer as defined next.
...
This is from publication 463.


However, the following also comes from Pub 483:

Who should use this publication.You
should read this publication if you are an
employee or a sole proprietor who has these
business-related expenses that may be
deductible. Other businesses (such as partnerships,
corporations, and trusts) and em-ployers
who reimburse their employees for
business expenses should refer to their tax
form instructions and chapter 13 of Publication
535, Business Expenses, for information
on deducting travel, entertainment, and
transportation expenses.

In other words, Pub 463 is not applicable to what a Corp can consider as expense. Instead, it is aimed at what an individual can deduct if they are not reimbursed for travel expenses or what a self-employed (i.e. Schedule C) individual can consider as business expense.

In fact, looking at pub 535, if you use an accountable plan, you can not only use a per diem for "M & IE" expenses but also for lodging (AFAIK, you cannot use a lodging per diem if you are a sole prop). If you use the "high-low" method of determining the "federal rate" (and I can't see why you wouldn't, as it seems the most favorable) your total lodging + M & IE per diem is $124 for most areas (a few high-cost areas allow for $201). According to the last full paragraph on page 47 of Pub 535, if you reimburse your employees based on a per diem which is no more than the federal rate, then none of the reimbursement is reported as wages, and all of it is considered as an expense by the corporation (but the meal portion of $34 for most places, or $42 for high-cost places is subject to the 50% rule).

It is my understanding that you can reimburse this per diem regardless of actual expenses.

Hopefully, some of the tax experts on the board can weigh in on this one...

Bruce

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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43219 of 121585
Subject: Re: Some S-Corp Questions Date: 12/21/2000 10:01 AM
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In other words, Pub 463 is not applicable to what a Corp can consider as expense. Instead, it is aimed at what an individual can deduct if they are not reimbursed for travel expenses or what a self-employed (i.e. Schedule C) individual can consider as business expense.

So do you think all this language in 463 is about what someone could do if they worked on a 1099 basis for a corp that they own or a family memeber owns? Is that why these rules about ownership interest are in 463?

I really hope we can get a confident voice here to say that you can use both kinds of per-diem when you have an S-Corp and work as its employee and travel for legitemate business purposes.

Thanks,
Helter



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Author: varney Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43224 of 121585
Subject: Re: Some S-Corp Questions Date: 12/21/2000 10:56 AM
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Helter said:
So do you think all this language in 463 is about what someone could do if they worked on a 1099 basis for a corp that they own or a family memeber owns? Is that why these rules about ownership interest are in 463?

No. Based on the way I read it, the ownership rules are there to handle an owner/employee of a corporation which has a non-accountable reimbursement plan.

In general, if you have a non-accountable plan, reimbursements to employees for travel expenses are included in wages, and then the employee can deduct those expenses on their individual tax return. There may be some reason to do this (less accounting required for the corp?), though I don't get it.

In this type of case (Corp with a non-accountable plan), a major shareholder can not use per diems for travel expenses.

Another section from Pub 463 (page 2):

Who does not need to use this publi-cation.
You will not need to read this publi-cation
if all of the following are true.
1) You fully accounted to your employer for
your work-related expenses.
2) You received full reimbursement for your
expenses.
3) Your employer required you to return any
excess reimbursement and you did so.
4) Box 13 of your Form W-2, Wage and
Tax Statement, shows no amount with
a code L.

Now, if your corp has an "accountable plan", then per diem rates not in excess of the "federal rate" are considered as accounted for, and are not considered as excess.

Two snippets from Pub 535 (pages 46-47)

Excess reimbursement or allowance.
An excess reimbursement or allowance is any
amount you pay to an employee that is more
than the business-related expenses for which
the employee adequately accounted.
...
Per Diem and Car Allowances
You may reimburse your employees under
an accountable plan based on travel days,
miles, or some other fixed allowance. In
these cases, your employee is considered to
have accounted to you for the amount of the
expense that does not exceed the rates es-
tablished by the federal government.

So, if you use a per diem rate, your employee is considered to have accounted to you for the amount of the per diem (as long as it doesn't exceed the rates established by the federal government). If your per diem is $124 for travel to Cincinnati (the federal rate using the "high-low" method), then the employee (you) is considered to have accounted to you for $124/day. As long as your reimbursement (for M&IE and lodging expenses) does not exceed that limit, then it cannot be considered as excess.

However, since you are "related" to the employer, it would appear (see Pg 26 of Pub 535) that you have to do some extra record-keeping. Basically, it appears that you (as an individual) need to keep a copy of all your expense reports, receipts, etc. This requirement doesn't apply to employees in general.

Bruce



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