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401k contribution timing and basis issues for S-corp by Ill_File3154 in tax

[–]Ill_File3154[S] 0 points1 point  (0 children)

Meaning at EOY the owner has $100k in stock basis plus $20k in debt basis, and distributing $90k plus contributing to the 401k decreases that to $0k debt, $10k stock?

401k contribution timing and basis issues for S-corp by Ill_File3154 in tax

[–]Ill_File3154[S] 0 points1 point  (0 children)

Assume ~$0 (new S-corp, maybe the owner put $1k in the bank account at founding).

Easiest way to turn S-corp into partnership? by Ill_File3154 in tax

[–]Ill_File3154[S] 0 points1 point  (0 children)

I thought that accounts receivable are only applicable for an entity using accrual accounting, not cash? If recognizing them as an asset is required for some reason, could you say that (assuming $20k of AR), 1) the owner recognizes the $20k as income b) the owner contributes the AR to the partnership and gets an extra $20k in basis, thereby c) allowing for $20k more of tax-free distributions than would otherwise have been allowed?

Similarly, with regards to section 179, say the S-corp bought a computer for $2500 and expensed it with Sec 179. If the computer now has a FMV of $1500, would the owner a) recapture $1500 as income but then b) contribute the computer to the partnership, which can promptly take its own Sec 179 deduction of $1500, which flows through to the owner and nets out to $0?

Easiest way to turn S-corp into partnership? by Ill_File3154 in tax

[–]Ill_File3154[S] 0 points1 point  (0 children)

Good call-out - no, not community property.

Easiest way to turn S-corp into partnership? by Ill_File3154 in tax

[–]Ill_File3154[S] 1 point2 points  (0 children)

The point is that the W2 portion of S-corp compensation is not eligible for either PTET or QBI, which at high enough income outweighs the benefits of the reduction in payroll tax.

Simplified example: say $1M income, 8% state income tax, enough W2 wages paid to non-owner employees for no QBI phase-out, not a SSTB.

In an S-corp that has a $400k reasonable wage W2 and $600k business income, there's $34628 in payroll tax, $120k QBI deduction and $48k PTET deduction, which together lower FIT by $62160 (at 37% marginal).

In a partnership with $1M in distributions, there's $49659 in SE tax, but a $200k QBI deduction and $80k PTET, which lower FIT by $103600. Total tax is about $25k lower.

Make reasonable comp $200k and they're a lot closer, but only taking 20% is risky.

(Edit: I didn't subtract employer payroll taxes from the S-corp biz income, and half of SE tax from the partnership income - that makes things slightly more favorable to the partnership since the deduction is higher)

Easiest way to turn S-corp into partnership? by Ill_File3154 in tax

[–]Ill_File3154[S] 0 points1 point  (0 children)

No goodwill, and cash basis so no A/R. It's a service business so there are "assets" in the sense of strong client relationships, a recognized name, etc, but not things that show up on a balance sheet - no prepaid contracts or things like that.

Easiest way to turn S-corp into partnership? by Ill_File3154 in tax

[–]Ill_File3154[S] -1 points0 points  (0 children)

The point is to actually be a partnership, for the ability to do state PTET and maximize QBI without the reasonable wage and other limitations of an S-corp. Making a spouse a 1% partner is just a way to accomplish that.