Quick question about taxes and the new year

transistor

transistor

New member
Sep 30, 2007
912
6
0
I'm confused...

So a company paid just paid me (in 2010) for Dec. 2009's earnings. I'm sure the earnings will show up on 2009's 1099. I run as an s-corp. How do I take that money out of my bank account now that it's 2010? Won't paying myself a salary or dividend affect 2010's taxes?

Yes, I have an accountant, but I'd like an answer tonight :D
 


depends on how your accounting is setup.

Given it's an S corp there's an extremely high likelyhood 2009.

It's mainly C corps using cash basis for accounting where things like this would hit in 2010 (when the cash is in/out).
 
transistor said:
I understand that, but I still don't understand what to do now that it's a different year
Click to expand...

It doesn't matter when you take the money out. What matters is when it is recognized as revenue. In the case of most S-Corps that date is the day you "received" the check.

"Receiving" the check can be a slightly gray area. For example, if you closed up shop for the year and went on vacation on Dec 26th and the check showed up on December 28th while you were gone AND you didn't come back to "the office" until Jan 1. you did NOT receive the check until 2010.

However - if you have a home office you can not play that game. If you know - or the IRS can show you SHOULD have known the check came - you have to recognize the revenue in the appropriate year.

It's not really worth playing that game of course unless you know for sure that 2009 kicked ass and 2010 is going to suck - you are then channeling the revenue to a lower-tax year by doing this, which may be beneficial.

If the IRS catches you doing that on purpose you may find yourself with a boyfriend, a small cell, and a sore ass.
 
Sharksfan said:
It doesn't matter when you take the money out. What matters is when it is recognized as revenue. In the case of most S-Corps that date is the day you "received" the check.

"Receiving" the check can be a slightly gray area. For example, if you closed up shop for the year and went on vacation on Dec 26th and the check showed up on December 28th while you were gone AND you didn't come back to "the office" until Jan 1. you did NOT receive the check until 2010.

However - if you have a home office you can not play that game. If you know - or the IRS can show you SHOULD have known the check came - you have to recognize the revenue in the appropriate year.

It's not really worth playing that game of course unless you know for sure that 2009 kicked ass and 2010 is going to suck - you are then channeling the revenue to a lower-tax year by doing this, which may be beneficial.

If the IRS catches you doing that on purpose you may find yourself with a boyfriend, a small cell, and a sore ass.
Click to expand...

Okay, so you had a home office and supposedly would know if the check came on the 26th, but what if you closed shop up on the 25th and went on vacation out of town? Then what?
 
Actually, if you have an S Corp, it doesn't matter when you take money out at all. It is when you "realized" it.

You need to know if you file taxes by cash or accrual method.

If by cash, then the day you "receive" it, it is recognized as revenue. And the day you pay bills you recognize as expenses.

If by accrual, then the day you invoice it, it is revenue and the day you receive a bill is expense.

In terms of taking cash out, if you have an S-Corp, it doesn't matter what or when you take it out. If you have profit for 2009 (revenue in 2009 minus expenses in 2009), you pay tax on that even if you take $0 out. If you take out more than you made, you need to pay it back to the company.

To confirm all that and more, definitely talk to your CPA
 
S-Corps also introduce the concept of paid-in-capital which can really mess with things depending on how you take money out.

Let's say your company started with $1000 you dumped in out of pocket. Your PIC is $1000. Now let's say you made $10,000 during the year (or more I hope!) but took no money out.

Your PIC is now $11,000. However, you still owe taxes on $10,000 of that money. You can take out $1,000 which is capital gains free. You still need to pay taxes on that $10,000 however, so let's say you take out another $2,000 to pay taxes.

You have $3,000 in pocket and $8,000 in the business.

Some sucker comes along and offers you $10,000 for your business. You accept. Your capital gains would be $2,000 since you already had an additional $8,000 in PIC.

Case in point - if you have a S-Corp (and I do and I love them) pay whatever it takes for a CPA to take care of this. It's worth the cash.
 
Yeah - the benefit is you are missing out on 15.9% of taxes by having an S-Corp which is generally worth it :)
 
You must log in or register to reply here.
Top Bottom
Back