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Ask Lane Your Own Question
Category: Finance
Satisfied Customers: 12439
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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S Corp.... Sole Member took car out of company to give to

Customer Question

s Corp.... Sole Member took car out of company to give to his daughter. I'm doing the "sale of asset" to take off the books. How is the distribution done, or is that construed as his distribution?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.
IF nothing is received for the car, then this is a gift....And the thing to remember when giving property to family members is that there are rules that apply to gifts of depreciated capital assets:...The real tax implications (future implications) are for the daughter:...If the market value of the gift is less than the donor’s cost basis, the donee must use the donor’s cost basis for determining any future capital gains; not the gifted value of the asset....If the asset is sold by the donee for less than the gifted value, the capital loss is the difference between the gift value and the sales price, not the donor’s cost basis....If the asset is sold for an amount between the gifted value and the donor’s cost basis, there is neither a gain nor a loss....For the S-Corp owner, this is just a distribution - a lowering of the capital account and his basis in the S-Corp....If you use a General Journal entry, the debit is to retained earning and the credit is to Cash....If you write a check, make sure the "expense" points to the retained earnings account in the equity section of the chart of accounts. ...In either case, only Balance Sheet accounts are used. There are no Income Statement accounts involved.
Customer: replied 1 year ago.
but, to take it off the books, should I not do it as a deemed sale?
Expert:  Lane replied 1 year ago.
No ... It's a gift....A deemed sale for 0$ would create a contrived tax loss....Just treat it as a distribution ...Replace cash (in the distribution example above) with the asset being distributed, the car....Debit retained earnings (or owners capital, if you don't use retained earnings because this is a passthrough) and credit the asset.
Expert:  Lane replied 1 year ago.
DId you see my answer?