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I have an S corp. A partner sent a payment to my personal…

I have an S corp...
I have an S corp. A partner sent a payment to my personal bank account instead of my business account by mistake. Should I put it on Schedule C of my personal return or on 1120S?
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Answered in 16 minutes by:
3/25/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 927
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Dear Customer,

"Substance over form".

The money is a transfer of the S Corporation. You can put it back to the business account.

It is more important to make it on the tax return or in accounting record the correct place. The deposit into the wrong place should not be the factor to cause the income or expenses or loan or any purpose of the money transfer to be registered in the wrong place.

Please feel free to follow up.

Regards,

Fiona

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Customer reply replied 27 days ago
Thank you for your reply! I should have asked this question earlier. I had the same accident last year and have already filed my 1120S without the amount. Should I file an amended 1120S or can I just put it on schedule C this time?

Dear Customer,

Putting anything on Schedule C has consequence on paying self employment tax.

It is best to have the amount reported in where it should be.

I am not suggesting you not to pay self employment tax. However, if the amount is not intended for your self employed business, the amount should not be on your schedule C.

A corporation is a separate entity from us individually. For all factors involved, it is best the income be reported on its correct entity.

Regards,

Fiona

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Customer reply replied 27 days ago
Got it Fiona, thank you. Last question, it's pretty tricky though, sorry about that. I bought a laptop last year and would very much like to deduct it as an expense. I bought it with my personal money but it's used 100% for work. and I believe I can't deduct it as a company expense other than maybe a reimbursement of an employee expense. So is it better to put it on amended 1120S as "compensation of employee expenses" or can I just put it on Schedule C as a safe harbor expense and put that amount which was sent to me by mistake as income? In this case I will have a small loss from self-employment and won't have to pay a self-employment tax. I'm just trying to figure out the best way to do it.
Customer reply replied 27 days ago
If I follow "Substance over form" concept I guess I should put it on amended 1120S. I'm just worried though that in case of an IRS audit, I wouldn't be able to show everything beautifully on my business accounts or am I overthinking it? is "compensation of employee expenses" is a suitable deduction in this situation?

Dear Customer,

Let's say it is a computer expense of 2500 completely used for work. Your company or partner reimbursed you for that amount and deposited to your account. So, from your perspective, if you are on company payroll as an S Corporation officer, you will not have deduction for your W-2 salary for employee expenses. You were reimbursed.

However, for the S Corporation, you are thinking to recognize income of 2,500 and deduct computer expenses for 2,500. Then, there is no tax effect.

Is that 2,500 an additional capital contribution from your partner? Then, there is a deduction without income.

Who are the shareholders of the S corporation? If there are multiple K-1s, every shareholder is entitle to part of that 2,500 expense deduction. You cannot just take the deduction on your tax return.

Regards,

Fiona

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Customer reply replied 27 days ago
Thanks for your reply, Fiona, it's a single member S corp, I'm the only shareholder.

Dear Customer,

" A partner sent a payment to my personal bank account instead of my business account by mistake."

Who is this partner?

Regards,

Fiona

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Customer reply replied 27 days ago
Ah, I'm sorry for the confusion I meant a customer. I'm just used to a different terminology, It's a company who I provided a service to.

Dear Customer,

How does the customer pay for your computer?

Or are you saying that some money is paid into your company?

And you also just happened to purchased a computer with your own personal fund?

What is the Schedule C business you have and how it is different from the S Corporation business?

Regards,

Fiona

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Customer reply replied 27 days ago
Well, sorry again about the confusion I'll try to explain it clearer. The computer and the customer are unrelated.The customer situation:
a customer had my both personal and business account details and sent a payment for the services provided by my S Corp to my personal instead of business account by mistake.Computer situation:
I bought a laptop for work but I paid for it using my personal credit card and I want to put it as expense somehow but don't know the best way to do it.Business situation:
The business I was planning to put on schedule C is not different from my S Corp business which is advertising. Does it have to be different?

Dear Customer,

For this year, with small amounts, yes, I would say that go ahead use your Schedule C business to recognize this customer's payment and your computer expenses. This is fine. Just keep all bank statements, invoices, and computer expenses receipts, etc.

May we discuss a little on why you are thinking to have both Schedule C and one shareholder S corporation doing the same business?

Regards,

Fiona

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Customer reply replied 27 days ago
Thank you so much Fiona! Well, to answer your question, there is no specific reason for that, it's just I overcomplicated things with that payment from a customer and the computer purchase so basically I have already filed 1120S and forgot about that amount that came from a customer untill I started to do my personal taxes. I was just trying to figure out if It's better to file an amended 1120S and skip Schedule C or don't bother with that.
Customer reply replied 27 days ago
Or do you mean, it's better to put a different business on Schedule C or leave the fields blank (not sure if it's allowed though)?
Customer reply replied 27 days ago
Or if you mean why the customer had my personal account details, that just goes back to the time when I didn't have an S corp and that customer makes a small payment once a year or once every two years, It's affiliate commissions, they just seem to have forgotten to update my detais in the system.

Dear Customer,

If you don't have a need for Schedule C and you don't have a Schedule C, it is best that you file your Form 1040 tax return with amended K-1. You can go ahead to amend Form 1120S and its attached K-1. It does not interfere with your Form 1040 filing deadline.

Regards,

Fiona

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Customer reply replied 27 days ago
Thank you Fiona! Just want to make sure, should I put the laptop as "Reimbursed employee expenses", "Owner's contribution to the business" or "Office expenses" in "Other Deductions" ? Which is better? it's $850
Customer reply replied 27 days ago
I'm talking about the amended 1120S

Dear Customer,

Because in an S corporation, you can take out money from the corporation which does not affect the income and expenses. The income and expenses to be recognized on your tax return are based on the book record.

Therefore, just add the customer's deposit as income and computer as expenses of the S corporation on the tax return. Your S corporation book and tax return will be correct. Your K-1 to flow to your personal tax return will be correct, too.

Regards,

Fiona

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Customer reply replied 27 days ago
it's basically doesn't matter which expense category I choose for the laptop?

Dear Customer,

In terms of the final tax effect, it does not. Usually, computer is used in administrative and in the tax return, usually, it is usually office supplies for that much amount.

Regards,

Fiona

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Customer reply replied 27 days ago
All clear Fiona, so I'll just go ahead and file an amended 1120S and won't bother with Schedule C. Thank you very much for your help and expertise!

Dear Customer,

You are welcome. A five star rating would be appreciated for me to get credit for the work.

Thank you.

Regards,

Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 927
Experience: Former IRS Revenue Agent
Verified
Dr. Fiona Chen and 87 other Tax Specialists are ready to help you
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Dr. Fiona Chen
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Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 927
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Experience: Former IRS Revenue Agent

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