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Are you familiar with income tax laws on business and

Are you familiar with...

Are you familiar with income tax laws on business and personal returns?

Accountant's Assistant: What state are you in? It matters because laws vary by location.

Georgia

Accountant's Assistant: What steps have been taken so far?

S-corporation is closed but had a lawsuit filed against it for unpaid franchise fees. I am tax preparer for one individual who was shareholder of same multi-shareholder S-corp.

Accountant's Assistant: Anything else you want the lawyer to know before I connect you?

Yes, In 2016, shareholders had to go to court and received a judgment against them for settlement of franchise fess. How do i report this on taxpayers return for 2016 and how do i carry forward for legal fees and associated franchise fees settled?

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11/10/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,759
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is***** am prepping my response. I will get back to you shortly.

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Hello again.

Just to be clear, you are asking how to deduct the franchise taxes paid on the individual tax return. Is this correct?

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Are you referring to franchise tax or franchise fees?

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Customer reply replied 8 months ago
I am trying to determine how to claim expenses paid in 2016 to settle motel franchise fees (not franchise TAXES) as well as legal costs for shareholder of a multi-shareholder S-corporation that is now closed. S-corp did not file a tax return for 2016 as it closed prior to 2016. Also, taxpayer (individual) has passive loss carryovers on same S-corp already.
Customer reply replied 8 months ago
Do not agree to additional fee. Was already charged $42 + $5 deposit.
Customer reply replied 8 months ago
Are you still there?

Yes, I am still here. I am checking on this. Thanks for the clarification. Please ignore whatever prompt that you received for extra fees, the site automatically generates the offers.

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Customer reply replied 8 months ago
Thank you.

I will be back to you shortly. Thank you for your patience.

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Customer reply replied 8 months ago
To clarify...I am trying to claim 2016 expenses paid by one shareholder on his 2016 personal income tax return (Georgia taxpayer). Also, he will have to pay these fees over the course of the next five years so not only needing advice on how to claim for 2016, but also how to carryforward.
Customer reply replied 8 months ago
The expenses are in connection to an S-corp that is now closed (prior to 2016) but paid in 2016 and to be paid over next few years for motel franchise fees and legal fees (lawyers).

I understand what it is that you need, however, I am not locating a definitive solution to the situation, therefore I am going to opt out and release the question back into the queue so that someone else can assist you.

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Customer reply replied 8 months ago
I will await your reply to***@******.***. Thank you.
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,140
Experience: Taxes, Immigration, Labor Relations
Verified

I assume that shareholder was an employee of that S-corportaion.

As such all expenses paid by that employee on behalf of S-corportaion are considered employee business expenses.

Employee business expenses that were NOT reimbursed by S-corporation (as an employer) are deducted on schedule A line 21 Unreimbursed employee expenses...

Let me know if you need any help with reporting.

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Customer reply replied 8 months ago
He was NOT an employee of the S-corp. What now?

If he was NOT an employee - that might be classified as investment expenses.
Investment expenses may still be deducted on schedule A - but line 23 is used for that.
However that deduction is limited further - that deduction is limited by investment income.

Use this form to figure the amount of investment interest expense you can deduct for the current year and the amount you can carry forward to future years.

https://www.irs.gov/pub/irs-pdf/f4952.pdf

Let me know if you need any help with reporting.

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Customer reply replied 8 months ago
MIGHT be investment INTEREST expense?Once again, the question is:1) How does an individual shareholder report his share of (2016) S-corp settlement expenses for an S-corp that went out of business prior to 2016?More specifically, how does a shareholder claim his share of motel franchise fees (for a trade name) and legal fees (for attorneys who represented S-corp) during settlement process that happened in 2016? S-corp was out of business prior to 2016 but shareholders carrying forward losses on Schedule K-1 from when business was open.HELP!

That is NOT interest - based on your information - but investment expense as a shareholder.
The shareholder reports HIS share of deductions as reported on K1.

That is based on K1 reporting.

.
If there is no K1 or expenses are NOT reflected on K1 - we need to consider the person is related to that S-corporation in two ways - as a shareholder /investor and as an employee.

So any expenses paid on behalf of that S-corporation may be classified either as employee business expenses OR as investment expenses.

In most situations - the shareholder is also an employee - and these out of pocket expenses are reported on schedule A line 21.

If he was a passive investor and not an employee - these are investment expenses and reported on line 23.

That is NOT related to losses passed on K1 as these expenses are paid directly and not via S-corporation.

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Customer reply replied 8 months ago
Praise God I think you get it and I thought that maybe the way he would do it but I needed clarity before I made that assumption. He was not an employee, therefore investment expense, will be a deduction on line 23 of schedule a? Please confirm I am understanding. Thank you for your time.

Yes - that is correct - If he was a passive investor and not an employee - these are investment expenses and reported on line 23.

In additional - you will need to prepare form 4952

https://www.irs.gov/pub/irs-pdf/f4952.pdf

and deduction of investment expenses might be limited.

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Customer reply replied 8 months ago
THANK YOU!

Sorry for your situation.

I would be glad to help you with reporting if needed.

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Customer reply replied 8 months ago
Thank you, I've got it from here. Have a great weekend

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,140
Experience: Taxes, Immigration, Labor Relations
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