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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29954
Experience:  Taxes, Immigration, Labor Relations
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I asked a question of LEV earlier before having to sign on

Customer Question

I asked a question of LEV earlier before having to sign on and pay for my account. It was a TAX question.
I had a sole proprietor last year in which I had equipment assets that I disposed of. I started an S Corp and some of the assets have been put in use in the new business. How do I account for these assets in the new business?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

You will need to continue depreciating assets using the original depreciation schedule.

But will deduct depreciation for the new business instead.
Please consider following illustration example.

Assuming your asset is 5-year property

and you started depreciating it - first year 20.00%
Second year 32.00%

After that - you start using the same asset for a different business - but continue depreciating untill it fully depreciated.
Third year - 19.20%
11.52%
11.52%
5.76%

Questions?

Customer: replied 1 year ago.
How do I add the fully depreciated assets into the new company. They have a FMV but shouldn't be depreciated because they were in the sole proprietorship.....They should show as an equity shouldn't they?
Expert:  Lev replied 1 year ago.

If the asset is FULLY depreciated - its adjusted basis is zero - and you may not deduct any depreciation.

For accounting purposes - you may enter that asset as having $.01

Customer: replied 1 year ago.
in the Asset I would enter it as a Debit of .01 and in the Owner's equity a Credit .01
Expert:  Lev replied 1 year ago.

Yes - for booking purposes - so that asset will be included.

But because it is fully depreciated - there is no equity.

Customer: replied 1 year ago.
Next question is the Owner was paying with cash from his personal money and turning in receipts to the Corp. He doesn't have cash on hand at the beginning of the year so I need to show these expenses but not sure how to account for these?
Expert:  Lev replied 1 year ago.

There are two ways

- first - we may treat as shareholder contribution to the corporation - it will be added to the capital account.

- second - liability - the corporation will pay back but a later time.

Regardless - these are deductible expenses for the corporation and reported in the year paid.

Customer: replied 1 year ago.
how would I do the entry for this? Debit the Expense and Credit the Shareholders' Contributions?
Expert:  Lev replied 1 year ago.

Correct.
You credit Shareholders' Contribution account

and debit Expense account.

Depending how your books are set - you might want to have two steps

(1) credit Shareholders' Contribution and debit Cash
​(2) credit Cash and debit Expense.

Customer: replied 1 year ago.
Owner had a Note payable that the S corp was making the payments to the Personal account where the money came from for the Loan. I Credited cash and Debited the Note Payable was this the correct way to do this.
Expert:  Lev replied 1 year ago.

Yes - that would be another option.