Hello,

I started S Corp in May of 2012. I have put in a bit of money for software, computer, printing/marketing material, and educational expenses related to my business to get it up and running. However, I have not yet received any income as of yet. Since I am an S Corp what is the best way to code my expenses? Liability on company books as a loan payable to officer/owner? So as the company begins to bring in revenue the company can slowly pay me back through the liability account setup? Also, I am in the process of completing my MBA which is related to my business, can this be considered a tax deduction on the company books as well? If so, what type of account would I code this to? (Educational expenses % deductible). I am currently catching up on getting all my business expenses recorded into my company accounting system and want to make sure that I code and setup accounts and expenses in their respectful places. Would greatly appreciate any input on this.

Warmest Regards,
Renee

“I started S Corp in May of 2012. I have put in a bit of money for software, computer, printing/marketing material, and educational expenses related to my business to get it up and running. However, I have not yet received any income as of yet. Since I am an S Corp what is the best way to code my expenses?”===> As a SH/EE of yur S corp, you can use your share of NOL c/b or c/f on your individual return on 1040, NOIT on 1120S. The purpose of NOLcarryback/cf is to offset net income taxed on the entity's tax return in a previous year. Because a S corp passes net income, net losses, capital gains and capital losses through to you each year, no previous year taxable net income exists to offset at the corp level. However,you, as a shareholder might be able to use a NOL carryback on your personal income tax return.

“Liability on company books as a loan payable to officer/owner? “==>in general, your, I mean,a shareholder's percentage of the S corp's net ordinary loss for the year is reported to you on line 1 of Sch K-1of1120s. This loss is reported on your personal tax return on line 17. If this loss results in a loss on line 43 (Taxable income) you may have a net operating loss.

“So as the company begins to bring in revenue the company can slowly pay me back through the liability account setup?””==> S corps are merely corps that elect to pass corporate income, losses, deductions, and credit through to you, a shareholder, for federal tax purposes..In most tax years, a NOL can be carried back 2 years,possibly 3 years too,to offset taxable income in those years. Apply the NOL to the older of the two years first. If any NOL amount remains after offsetting the taxable net income in the older year, carry the remaining NOL into the more recent year. If any NOL still remains, it will be carried forward into future years.Applying NOL carrybacks requires filing amended tax returns for each year to which the NOL carryback is applied.

“ Also, I am in the process of completing my MBA which is related to my business, can this be considered a tax deduction on the company books as well?”===>No; on your return on 1040,NOT on 1120S; graduate school tuition is sometimes tax-deductible. There are two avenues a taxpayer can take to either deduct or credit tuition payments: a lifetime learning credit and deducting tuition on Form 1040. MBA, tuition is a special case. According to the "NY Times," youcan deduct the cost of a graduate degree if you can establish you were in a trade before youearned the degree and that the degree helps with skills specific to that profession.You can deduct graduate tuition using the Lifetime Learning Credit. The maximum credit is $2,000. The credit is calculated by multiplying tuition paid by 20 percent. For example, if you paid tuition of $4K, the Lifetime Learning Credit would be $800 — $4K* times 0.20. There are income limits for this credit the maximum AGI allowed for the full credit is $51K for single filers and $102K on a joint return. The credit is eliminated at $61K for singles and $122K for joint filers.
The IRS Webpage here :
Publication 970 (2011), Tax Benefits for Education

“ If so, what type of account would I code this to? (Educational expenses % deductible). I am currently catching up on getting all my business expenses recorded into my company accounting system and want to make sure that I code and setup accounts and expenses in their respectful places. “===>As described above.

ALSO NOTE:For business start-up and organization costs paid or incurred after September 8, 2008, a corp can deduct up to $5K of such costs for the year it begins business. The $5K deduction is reduced by the amount the total cost exceeds $50K. If the total costs are $55K or more, the deduction is reduced to zero. Any costs not deducted must be amortized over a 180 month period, beginning with the month the corporation begins business.

The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business.as your biz is organized as a corp , only the corp can elect to amortize its start-up or organizational costs. A shareholder /owner cannot make this election. You, as a shareholder , cannot amortize any costs you incur in setting up your corp . Only the corporation can amortize these costs.

However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing biz. These costs qualify as business start-up costs if you acquire the biz interest.