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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I have an LLC (single member) that has elected S-Corp status

Customer Question

I have an LLC (single member) that has elected S-Corp status for the full 2015 tax year. Prior to filing 1120S for the first time, Schedule C was filed on form 1040.
My question is in regard to the entries that should be made to convert the assets, liabilities, and equity into the S-Corp.
Will the assets as of 1/1/2015 be moved over into beginning retained earnings? Is that generally the best way to convert or should the additional paid in capital or loan from shareholder accounts come into play. I'm basically looking for some guidance as to the best way to make the conversion for tax purposes.Thanks much,Andy
Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.

As that is teh first tax return for S-corporation - you start with zeros.

There is no retained earning at the beginning - but you may have some at the end of teh tax year.

You either contribute cash or assets.

If you contribute assets - these are based on your adjusted basis.

That would be shareholder capital account.

You may provide loans to S-corporation - that is not an issues. But that should be bona fide loan with realistic expectation to be paid back.

Neither will affect taxable income of S-corporation - that is based on your specific circumstances.

Customer: replied 8 months ago.
Thanks for the response Lev.
So let's assume assets were contributed such as equipment and vehicles on 1/1/15, you're saying the offset won't be retained earnings. So would you put it in APIC, a loan from shareholder, or some other equity account such as the one you cited "shareholder capital". I wasn't sure if you were using that as a generic description or specific one.
While there isn't one currently a note could be created for a "loan from shareholder" if there is a benefit to that structure.
Also, on the Sch M-2 on the 1120-S, where would you input the beginning equity (contribution of assets)? It would either be "balance at beginning of tax year" or "other additions". If it's "other additions" I guess you could input "adjusted basis of assets" or something?Thanks much!Andy