I have a tax question

[Gipper]

Yeah, they're cracking down on S-Corp's too. A $5k "Shareholder's Compensation" and a $40k "Shareholder's Distribution" isn't going to cut it any more. You can kind of get around it by creating a "Loan Receivable - Shareholder" asset but if that account keeps growing and the wages don't there will be trouble farther down the road.

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As far as writing off stuff like dinners goes that's another area that can work out OK as long as it isn't abused. $100k Gross Receipts and $30k "Meals and Entertainment" is likely going to get you a look. Besides, that stuff is only partially deductible. He'd really be better off reimbursing himself for his out of pocket expenses and making sure that he keeps a log. Have him write out the reimbursement checks too instead of just recording them through a journal entry.

Interesting tip. Thanks.

I've tried to be pretty much on the up-and-up with him since I don't really want him to get in the hot seat again.

 

[Lutherf]

Interesting tip. Thanks.

I've tried to be pretty much on the up-and-up with him since I don't really want him to get in the hot seat again.

No prob.

You definitely want to stay on the up and up but remember that the two key phrases are "ordinary" and "necessary" when it comes to business expenses. A lot of stuff is "ordinary" just because everyone else in that kind of business does it and I figure that stuff is "necessary" as long as you can show that it resulted in higher gross receipts. I wrote off a boob job for a client one year because in her line of work it was certainly ordinary and she increased her gross receipts by 10% over the prior year. It never got questioned.

One other thing, make sure that you are using a good NAICS code instead of one of those generic ones. I swear that the generic codes get pulled more often.

 

[Gipper]

No prob.

You definitely want to stay on the up and up but remember that the two key phrases are "ordinary" and "necessary" when it comes to business expenses. A lot of stuff is "ordinary" just because everyone else in that kind of business does it and I figure that stuff is "necessary" as long as you can show that it resulted in higher gross receipts. I wrote off a boob job for a client one year because in her line of work it was certainly ordinary and she increased her gross receipts by 10% over the prior year. It never got questioned.

One other thing, make sure that you are using a good NAICS code instead of one of those generic ones. I swear that the generic codes get pulled more often.

Coding usually isn't an issue because what he does isn't incredibly specific, complicated, or lucrative.

My main problem is that, while he's a SP, he still has a few employees that just happen to be related to him. Did you know that, for quite a while, he wasn't even issuing out 1099s? Hell with W-2s...he wasn't even issuing a 1099-MISC to his daughter (who made comfortably in the 4 digits, well past the cutoff). Frankly, I don't know how he functioned for as long as he did. He did have another accountant, but I don't think he was doing things properly.

This is why I get pissed at people who think that they know what they're doing when they clearly don't. People ignore a doctor's advice and just do what they want, people defending themselves in court (and have a fool for a client), and people who think that "crunching numbers" is child's play.