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Corporate Expenses Paid From Personal Accounts
Whenever possible, it's best to pay corporate
expenses directly out of the corporate accounts, as well as personal expenses
directly from personally owned accounts. However, it is often necessary to
pay corp expenses from personal accounts. There are a number of ways in
which this kind of thing can be handled for bookkeeping and tax purposes.
1. The expenses paid personally on behalf of the corp can be deducted on the
same 1040 Schedule E as the related Royalty or Lease income received from the
corp.
2. You can set up each expense paid on behalf of the corp on the corp books,
with a debit to the appropriate expense account and a credit to the "Loans From
Shareholders" liability account. Use the dates of the original underlying
personal payment so the expenses are picked up in the proper year.
On the personal QB, the checks would be debited to the Other Asset account
"Loans to Corp." If everything is in synch between the corp & personal QB
files, the balances in each of those accounts should match at any point in time.
Loan repayments from the corp would be a tax free event and is based on cash
needs in either direction.
Option Number 1 is obviously the easiest to do bookkeeping-wise. However, it
isn't the best way overall. Using number 2 is a bit more data entry work, but
the big benefit is that there is no record of the expenses on the 1040. I have
been noticing more and more lately that having expenses picked up on another
entity's tax return (1120 or 1065) instead of the 1040 attracts less attention
form IRS. They audit far fewer small corps and partnerships than they do
1040s. If those expenses don't even appear on the 1040, there is no way they
will be asking anything about them.
I can't force anyone to do things any particular way over the other. Many of my
clients do use option number 1, while more of them are using number 2, as they
become more comfortable working with QB.
KMK
This page was most recently
modified:
Sunday, May 01, 2005 01:36 PM
Ozarks Time by KMK
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