"Agnes
Tally" <tally435[at]infionline.net> wrote:

- quote -

Depends on the facts underlying the personal expenditure. Could be wages,
could be a deductible expense, could be a non-deductible expense.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Agnes Tally wrote:

- quote -

Well, you have a problem <grin> , though one that is often
encountered in closely held corporations. Generally it's
far better *NOT* to have such payments made by the
corporation because otherwise what the payment represents is
open to interpretation--and the IRS just might interpret it
in a less "tax favorable" manner than you'd like.

The problem is that the payment is not a corporate
expense--therefore that leaves three options:

1. The payment represents a dividend paid to the
shareholders. Judge Laro's decision in the Neonatology case
would suggest this is the "normal" treatment, and prior to
last year this would have been the IRS's generally preferred
answer for a C corporation since it would result in a double
tax (no deduction at the corporate level, inclusion in
income at the individual level). It may still be the IRS's
"best case" for a personal service corporation or a
corporation in the higher corporate tax brackets.

2. The payment may represent compensation paid to the
shareholder. That would require payroll tax reporting and
paying the payroll taxes, but the corporation would get a
deduction that means there'd be a single level of income
tax.

3. The payment could be a loan to the officer. That's the
answer that generally is the most taxpayer friendly, though
it's incredibly useful to have *documented* this as a debt
due back to the corporation and figuring out a way
eventually to repay it is also useful.

But, as I noted, the best answer is to keep this junk out of
the corporation to begin with. I've found having two other
equal shareholders does wonders for this <grin> , as your
unrelated shareholders generally aren't terribly sympathetic
to treating the company as your personal checkbook.

--
Ed Zollars, CPA
Phoenix, Arizona

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Agnes Tally wrote:

- quote -

Depends.

What is relationship of the person for whom it was paid to
the corporation, and what kind of corporation is it? c or
s?

ChEAr$,
Harlan Lunsford, EA n LA

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When a corporation makes a personal expenditure, how is this
accounted for? (e.g. doctor bill)

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