Q-1:

Subject: S Corp. buisness income limit for section 179

 

Hi-

 

My husband is a sole shareholder of an S corp.  The S corp. is planning to purchase a SUV (< 6,000, < 14,000) to take the $25,000 section 179 deduction for 2006.  His W2 wage from this S corp. is $35,000.  How can he determine the taxable income of the S corp. to figure a business income limit?

 

My understanding of publication 946 is that he can add back his wage of $35,000 from this S corp. to figure a net income of the S corp.  Does this mean the S corp. can go up to net loss of $25,000?

 

Thank you very much in advance!

A-1:

You are correct that the wages paid by the S corp to your husband can be added back to the corp's net income or loss in determining its income limit for purposes of Section 179 at the S corp level.

Section 179 expenses do not actually show up as a regular expense on the 1120S.  They are passed through to the shareholders separately and directly on their K-1s. 

This is the kind of thing that should be discussed with a professional tax advisor.  S corps are too complicated to try to do the tax work and planning without the assistance of professional tax advisors.  You are taking a very serious risk of screwing things up badly and incurring severe IRS penalties if you try to prepare your own 1120S and 1040.

I hope this helps.  Good luck.

Kerry Kerstetter

Q-2:

Thank you so much again for your prompt response.  I agree with you about the importance of hiring a qualified tax professional.  My husband and I are not happy with our current tax preparer's qualification and considering hiring a new tax advisor for 2006.  For example, she used 1065 to file 2004 and 2005 returns for my husband's single member LLC instead of 1040 schedule C.

 

I wonder if we could hire you to file our tax returns.

 

Thank you again for your great help.

A-2:

That is a little scary, for someone to be so unclear on the rules for single member LLCs.  A change is definitely required.

I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time. 

Unfortunately, we don't have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.

If you haven't already done so, you should check out my tips on how to select the right tax preparer for you at.

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter

Follow-Up:

Hello Mr. Kerstetter-

 

We really wanted you to take us as your new client but I do understand your situation.  We live in Las Vegas, so I guess I could talk to the EA in Carson City  although we should not hire anyone just because they practice their business in the same state :)

 

Thanks for your time and information!

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2006 02:06:00 PM Send this post: