New S-Corp, No Employees, No Revenues, Few expenses

New S-Corp, No Employees, No Revenues, Few expenses

What is the name of your state? Colorado
Hey All,

Say that in June of 2005, - and this is strictly hypothetical of course - but say that my partner -- whom we'll call Joe -- and I began pooling resources for a new business venture which was a natural segue from the the two small sole proprietorships we each ran out of our homes.
Say that, in 2005 we invested...

$3500.00 - For industry specific Education & Classes and...
$3000.00 for tablet PCs & Custom Programming

And say that in 2006 we invested an additional...
$1200 for miscellaneous tools
$1200 for custom printing (cards, brochures, artwork)
$5000 for custom programming.

In August 2006 we formed a new Sub - S corp however it was the first of February 2007 before any transactions took place under the corporate name, and then only one revenue transaction for $300.00 and one expense in the form of $1200.00 for Errors & Omissions Insurance.

Say that, in the course of 2006, Joe was compelled to cash out his 401K, IRA's etc. while scraping by on only his wife's meager wages as a Special Education Teacher in the Local Public School system (meaning the cashed out funds were used to supplement her paltry income). Now, Joe is hoping to offset the taxes due against his cashed out retirement funds personally, with expenses/losses for the year in the coporation.

Is this remotely plausible - considering that at best the corporation might show total expenses in 2006 of $14,000 (assuming the coporation were to "BUY" the computers, tools artwork, cards brocures etc. from us as sole proprieters) with gross corporate "revenues" of $0.00 for the year?

Sorry, but its iffy if you could classify the items as "purchased" from you and Joe, and even if you could, the company had no revenue to offset, therefore you could not 179 expense the items, you would have to depreciate them.

The cards, brochures and artwork could maybe be purchased from you and Joe and be a legitmate expense, but even that is iffy. All of it is really a capital investment on the part of you and Joe.

People get into trouble when they do things they don't understand. You don't hypothetically do business things, you have books and records and minutes and reports and whatnot. Grow up and do things right if you plan on being businessmen where you rely on yourselves rather than an outside employer. Hypothetical theorizing can also be considered tax fraud if the theory is reported as reality on purpose.

Now, S-corps can be difficult in many ways to deal with properly. Legitimate expenses can be passed through. There are rules as to how this can be done. A major rule has to do with "at risk" capital. You can be limited as to the amount of loss which passes through based on the amount you have "at risk". Even if you had enough in, some of the things you list could not be expensed as you don't have sufficent income for that year. They would need to be capitalized. You also have the business ownership problem. Are those assets really business assets? I could go on and on. But I've got work to do as well.

Get a good accountant and go through your business plan. You need to get your taxes done soon. Make an appointment for the review for after tax season at the same time. Consider as to whether you will file partnership returns for the first year (2005) and first 8 months of 2006.