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Transfer of Schedule C assets from one business to another

 
 
Mike Blake-Knox
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      04-17-2010, 03:32 PM

My wife closed down her business, reincorporated then started a new
business that was able to use most of the assets from the original
business. I'm assuming that means a new schedule C but am wondering
about the TurboTax mechanics of transferring assets from one schedule C
to another.

Some of the assets had section 179 elections and are within their
depreciable life.

Any suggestions as to how to handle this best in Turbotax?

Thanks.

Mike

 
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R. C. White
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      04-18-2010, 01:26 AM
Hi, Mike.

If you have not misstated your wife's situation, then you are in dire need
of some professional tax advice!

The words "reincorporated" and "Schedule C" do not go together; they are
mutually exclusive. An individual who owns a sole proprietorship business
reports income and expenses of that business on Schedule C attached to her
Form 1040, Individual Income Tax Return. An individual who owns stock in a
corporation, even if she is the sole shareholder, does not use Schedule C to
report income from a business conducted by that corporation. A corporation
is "a person" created by the State; it has title to its own assets, may
carry on a business, and reports income and expenses of that business on its
Form 1120, Corporation Income Tax Return - and pays its own taxes. (The
Supreme Court's recent decision on political contributions made by
corporations reaffirmed the concept that a corporation is a person, separate
and distinct from its owners.)

There are several special kinds of corporation, such as LLCs and Subchapter
S corporations, and these have different rules and special tax forms. Sub S
corporations allocate their income to their shareholders, who report such
income on their own Forms 1040, but the income is reported first on the
corporate return.

> about the TurboTax mechanics of transferring assets from one schedule C
> to another.


An individual can transfer assets from one sole proprietorship to another
quite simply. Ownership of the assets does not change; their tax basis in
the taxpayer's hands does not change; neither does the accumulated
depreciation and other tax attributes of each asset. The assets simply move
from the taxpayer's left pocket to the same taxpayer's right pocket. And
from the depreciation schedule for the taxpayer's Schedule C for "My FIRST
Business" to the Schedule C for "My SECOND Business".

But the situation is VERY different for assets transferred from an
individual into or out of a corporation, even if that corporation is
wholly-owned by that individual. Generally speaking, it's pretty simple for
an individual to transfer assets into a corporation, but VERY complicated to
transfer those same assets out of the corporation - and it makes a big
difference if the assets are transferred to the individual or to another
corporation, even if the two corporations are owned identically.

The very innocent acts of transferring assets from your wife into her own
corporation, and then transferring those same assets back to herself or to
another of her corporations, can trigger significant tax liabilities. The
IRS is not terribly interested in how you handle these things in Quicken or
TurboTax. But they are very interested in what you report on - or omit
from - your tax returns.

That's why it is very important that you get competent tax advice before
your wife takes even the first step in her plan!

As I remind readers here often, I've been retired for nearly 2 decades,
Mike, and tax rules change constantly, so I am not competent to advise you
in this matter. But I strongly urge you to consult with a tax attorney or
CPA before making any moves.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(E-Mail Removed)
Microsoft Windows MVP
(Using Quicken Deluxe 2010 and Windows Live Mail in Win7 x64)

"Mike Blake-Knox" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
>
> My wife closed down her business, reincorporated then started a new
> business that was able to use most of the assets from the original
> business. I'm assuming that means a new schedule C but am wondering
> about the TurboTax mechanics of transferring assets from one schedule C
> to another.
>
> Some of the assets had section 179 elections and are within their
> depreciable life.
>
> Any suggestions as to how to handle this best in Turbotax?
>
> Thanks.
>
> Mike


 
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