- quote -

It appears that while you may have maintained accrual basis
for book purposes, you did not follow the same for tax
purposes (i.e., you did either cash basis or modified cash
basis (with I don't know what modifications). The NOLs from
2002 and 2003 will carry forward to 2004, and reduce the
taxable income this year. (Normally these would be carried
back first, but since there are no earlier years, whether
you made the election to forego the carryback or not, the
net effect is the NOLs carry forward).

There is no need to amend the earlier returns; just do the
2004 return on the same basis of accounting used in the
earlier returns. If you in fact pay a salary to yourself in
2004, that will also reduce taxable income. Don't forget to
consider retirement plan contributions to further reduce
income.

(Note to moderator: After a long absence, I am back
monitoring MTM; maybe I'll talk about it sometime).

Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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"Bob Phelps" <bobephelps[at]yahoo.com> wrote:

- quote -

I would argue your taxes were prepared correctly, While you
used the accrual method, you are not allowed to claim an
accrual paying an expense to a related party. Therefore,
the salary should have been accrued on the books, but taken
as an "M-1" adjustment on the tax return.

Likewise, in this year, you should pay yourself, on your
books, you are paying this years comp and the accruals. On
the tax return, the deduction should be taken and then
adjusted as an "M-1" adjustment.

Charles Markham, MST, EA

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"Harlan Lunsford" <hlunsford[at]bellsouth.net> wrote:
- quote -

I agree with you (see my post above) and if I can take the
deduction in 2004, the net result is still the same. The
carry forward of the previous NOLs won't be as large, but my
deduction in 2004 will be greater, so the net is the same.

Thanks for your input.

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Brian,
- quote -

The expense was recorded on the books, but not taken as a
deduction on the returns. As an added point though, my 940,
941s and state payroll forms all showed $0. So if I amend
the 1120s, how should I handle the previous 940, 941s and
state forms. Seems like I'd be much better off if I just
take the deduction in 2004. What do you think?

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Bob Phelps wrote:

- quote -

If you do that, chances are THEIRS computers won't take any
notice of the accrual method as pertains to payroll taxes
and THEIRS will wonder where the 941's are?

The accrual method IS theoretically correct of course, but
it gets in the way of practicality at times; see the
message above for an example.

I would do nothing atall. You don't want the hassle of
explaining to IRS why no 941's were sent in. Just pay
yourself handsomely this year.

ChEAr$,
Harlan Lunsford, GC and EA n LA

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"Bob Phelps" <bobephelps[at]yahoo.com> wrote:

- quote -

If you booked a payable, the expense was recorded in 2002
and 2003. What makes you think that it wasn't?

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I am the single employee of a C Corp which has been in
business for 3 years. The 2002 and 2003 returns showed a NOL
and 2004 will have a profit. The funds weren't available to
pay a salary in 2002 or 2003, but the books showed salary
payable, payroll taxes payable, salary expense and payroll
expense (accrual method of accounting). A salary and payroll
tax deduction was never taken in 2002 or 2003. Can I amend
these returns and enter the salary and payroll tax expenses
so the NOL can be increased? Or is this illegal since the
back salary for 2002 and 2003 won't be payed until 2004?

Thanks for your input.

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