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Form N-35, Rev. 2006, S Corporation Income Tax Return - FormSend

hi this is Evan Hutcheson CPA I do virtual accounting for individuals and small businesses including helping people file their taxes online through screen sharing if you are in the minority of wanting to follow your own taxes or perhaps you just don't want to give away your information like your social or your bank accounts to to the fear of identity theft I am here to help through screen sharing I can guide you along the complexities of your tax return from start to finish now what I want to do today is show you the S corporation tax return the form 1120s I'm gonna guide you through this how to input the numbers what the return looks like what you need to do one of the things I'm gonna do is show you the financials how to transfer financials from QuickBooks or another financial system to the tax return but first I want to just run through really quickly the return itself it's you know of course there's a lot of pages involved behind the 1120s but the form itself is about five pages long first page has just some general info your name your ein the date that you you form the S corporation and so forth that's the top of it then you get to the income portion and then the deduction portion of the deduction has a lot of the main expenses like compensation of officers rent taxes depreciation and so forth and then you have another deduction worksheet that just has some of the less common expenses but they're still fairly fairly common like accounting bank charges dues and subscriptions and so forth now you add up these other deductions with the current deductions you get total deductions of two hundred eighty one thousand or no I'm sorry four hundred eighty four thousand which you subtract that from your income and you come up with your net income two six six three six then you scroll on down and you get to a lot of questions they ask they ask your accounting method your business activity if anyone owns 20% or more or if a corporation owned 20% or more if anyone own 50% or more if you file $2.99 and so forth then you get to page three this is a Schedule K this is the schedule K transfers over to the k1 the k1 is what you use to file your personal taxes so after you file your S corp same thing for a partnership if you file the 1065 your income and some other information is going to move over to the schedule K which transfers to k1 right here and you'll print this out or send this to your CPA or whatever to input on your personal tax return so that's this part right here then you get down to the balance sheet which is this won't affect your taxes at all this is just kind of the your bookkeeping balance sheet it helps you you and if you earn less than 250 grand or you have less than 250 thousand of assets you don't necessarily have to file this I like to do it anyways because it just helps me kind of reconcile everything together but this is your balance sheet your beginning of the year so that's pretty much last year's balance sheet that transferred over at the current year and the current year's balance sheet and then you have some schedules down below m1 and m2 but what I want to do is kind of show you all right how you get your financials that you get from QuickBooks and how you transfer them to the extra so we'll start at the top that income and we'll just take a quick look here's your balance sheet it's got your assets and your liabilities and your equity this is Excel I know but I just exported it from QuickBooks so you have your assets which is cash fixed assets security deposits your liabilities which is a line of credit note payable and then your equity now this is somebody's books who is not an accountant so hopefully this will help you understand certainly if you are not you know the the best bookkeeper in the world and you have some mistakes I'm gonna look at these mistakes and I'm gonna try to fix them as I transfer them to the tax ring so that's your balance sheet this is your P&L it's a cash basis like we saw on the tax return it was cash rather than accrual here is here's your income and here's your expenses and then here's your a net income so what I do is I X off what I've you put on the tax returns so far so we'll start from the top total income five hundred thirty nine thousand eight hundred and five that number there should go right here five three nine 805 and this other number right here is 853 we'll go over that in a minute that's a little a little more confusing I'll try to make it as simple as possible but the 539 805 is right there so we to X that off and we go to the next line item which is shareholder compensation now what I did with this here's salary and wages that aren't shareholder and here's shareholder shareholder I looked at the w3 which is the summary of the w-2s which has a total amount then I looked at the shareholder amount a shareholder w2 which was one which was 137 605 I just subtracted that 137 605 from the w3 to get the other salaries instead of having to add up every little w2 so I did that and that 137 605 plus the 45 277 equals one eighty two eight eight two you see this payroll expense account right here I take the difference of that and what do we just add it up I got fourteen thousand seven ninety four and I am put that on the tax return under payroll taxes because that's just kind of the plug number that's what's left over from payroll expenses I'm putting it under payroll taxes now people do things differently in some returns I like to make sure everything's good so I'll add up a 941 I mean I'll look for the nine forty ones and the unemployment quarterly payroll taxes and I'll make sure that the payroll tax is equal to fourteen seven nine four but this is kind of a quick way to do it if you think this payroll expense number is correct it's all the payroll expenses for the year then you can do it this way just take that I think this is the plug number and put that under payroll tax I know we're on cash basis with payroll sometimes you want to do payroll under accrual basis even though you're doing cash basis I always do accrual for instance so this is 2014 taxes the fourth quarter 2014 payroll taxes you know the Social Security of Medicare the Tennessee unemployment in this case whatever state you're in you might have that unemployment in the federal unemployment all for the fourth quarter were paid in January of 2015 so in our cash basis really that wouldn't be included on here because you're not including it until you pay it but for payroll just to keep it consistent I use a Korell basis that way the w3 is reflective of accrual basis because it shows the current taxes that are owed for the full year even though some of those taxes were not paid until the fourth until January 2015 and you know 20 January 2014 there are some payments made before 2013 that aren't going to be included on there so 95 percent of the businesses I do our cash basis most small businesses our cash basis it's just easier to do the bookkeeping for it and it's there's usually more of a benefit tax wise because you don't have to include the revenues that you've earned at the end of the year that you have not yet collected which is usually more than the payables that you have incurred but not yet pay so the taxes are usually going to be higher under an accrual basis but like I said I do payroll under accrual everything else in her cash but anyways so we were marking this one off that's on here repairs and maintenance of ninety nine dollars that's down here marked that off but no repairs taxes of nine fifty four and three fifty what is that equal 1304 that would go on here right 13:04 marking that off see these taxes when the IRS sees it when you filed a return this smart worksheet is not gonna be on there so all you're gonna see is line twelve sixteen oh nine eight this is just a way that you can kind of divvy it out and make sure everything's good like I looked at I drilled down on that tax expense account on QuickBooks and I saw that nine hundred fifty four dollars was for state unemployment are not state unemployment State Franchise and excise tax so I put that under this and then I put the remainder under other miscellaneous depreciation of three four five - now that is we'll go over that a little bit more in depth here in a minute it's not on the profit and loss from QuickBooks what I do and what's very important that you do when you export from QuickBooks or when you're using QuickBooks you need to reconcile to the tax return to make sure everything's good so here's the bottom line for QuickBooks fifty eight thousand eight seventy nine I'm adding these differences that are on the tax return that aren't in QuickBooks right here and then I'm doing a sum of all of this to come up with this number right here so the depreciation was three thousand four fifty two it's not on QuickBooks but it's right here I'm putting it right here to make sure when we're all said and done but this bottom line number matches up with what we think we should have fifty six six three six fifty six six three eight you know it's two dollars off that's fine but we know that we're correct we didn't make any mistake anywhere because it matches up ok now we go down to meals 863 50 percent of meals can be written off so really we're only writing off for thirty two half of 863 so we're going to the P&L we're finding the 863 we're check marking that off that's travel in an entertainment I drilled down on this travel and entertainment it's all entertainment it's not traveling so it's all meals meals and entertainment so we mark this off and then like we said we got a reconciler the tax return half of its not deductible so we need to add half of a back which is what I did right here and then we go to the other deduction worksheet we have a counting of a thousand bank charges of thirty-five dues and subscriptions of 196 and then try to go through this little quick so I know you're it's a long video so we have accounting of a thousand dues and subscriptions of 196 and bank charges of thirty-five equipment ran of 108 five to nine insurance of 11 to 5 1 and miscellaneous expense of 608 so we have equipment rent of 108 529 insurance of 11 to 51 and miscellaneous expense of 608 a contract labor of 1,000 I'm sorry 130,000 434 travel of 248 some travels 248 contract labor 1 34 34 telephone expense of 1553 supplies of 525 so you go to telephone expense 15:53 supplies okay supplies cost to get sold evans production there are no cost to get sold there's no there's no inventory of things being sold so this was misclassified this is really supplies so that's 450 and then from the balance sheet there was a fixed asset of $75 that wasn't a fixed asset you know it's only $75 usually fixed assets are gonna be above you know five hundred dollars for instance so we move this over to the P&L so we're adding it to supplies instead of putting it as a fixed asset I'll go over that in a little more detail so that's 75 plus the 450 which is 525 then we have audio expense of 14,000 917 audio rental of ten seventy five five mileage reimbursement of one thousand eight the mileage reimbursement one thousand eight are in all ten seven five five and audio expense of 1499 seven so all these are checked off which is good this was the meals adjustment this was a depreciation adjustment here's the supplies adjustment this balance sheet adjustment of 853 that was on there too we just skipped over it I didn't want to go over it yet but that was the income we're adding due to a reversal of AR which I'll go over are adding eight hundred and fifty three dollars to income that's why this is a positive but these expenses are negatives this expense is a positive because we're not taking the deduction for it we're only ducting half of it instead of all of it but as we saw earlier it all matched up this plus these amounts equal this so we are good there and then what we do is we go to the balance sheet so here's the PL we go through all those questions there's schedule K then we're getting to the balance sheet now the balance sheet is like I said earlier it's not for tax purposes we put it on here just his informational purposes so this carried forward from the previous year this is the current year now what we do and like I said I think I said this before we're working with QuickBooks from people that don't use QuickBooks a lot so there's a lot of inaccuracies and this is where we kind of make the adjustments because the profit and loss statement is what it is I mean theoretically this amount want spent on insurance I mean we can always drill down and make sure but these amounts should be relatively accurate the balance sheet on the other hand these amounts that doesn't mean anything right there negative 2000 that's not even possible for accounts receivable some of these amounts are just off because profit and loss statement that starts over each year you put the expense and you put thing come in it's there the balance sheet is carrying a carrying forward value of all your assets and your liabilities which can sometimes get out of hand if you input wrong stuff in QuickBooks so we're gonna assume that the cash account has been reconciled because you should always reconcile your cash account so this 465 will go on the tax return is 465 right here as cash basically what we need to do even if this was right well we need to put it on there correctly but we are not putting these numbers on the return we're really putting the difference between 2013's numbers and 2014's numbers so I kind of put 2013's numbers here I just looked at the older balance sheet and put the numbers here so the difference between this and this is legit it is what it is there's a reason there's a difference whatever you input during the year created a difference in those numbers so that number should be accurate it might not be in the right spot but that number is a legit number and it should go on the tax return somewhere now since this is a cash basis balance sheet we you know before we exported that we made sure rose cash and not accrual because we're doing the return on a cash basis rather than an accrual basis the accounts receivable and the accounts payable if you're familiar with QuickBooks you probably know those are accrual basis accounts and when you change it to cash basis there's a little glitch in the system that sometimes creates these off amounts that are definitely not accurate because there's no way there's a negative two thousand of accounts receivable accounts payable had nothing in it so that's fine so what we need to do to change it to cash basis is obviously not for this number in there because that's in no way correct we look at the difference between 2013 and 2014 and we got to think okay accounts receivable gets affect that the other side of the entry every can counting entry is two-sided when accounts receivable gets changed it's the other side of the entry is revenue so if you're you're purchasing something as a receivable you are debiting receivable and crediting revenue I'm sorry not purchasing something if you're if you earn are earning something because you're increasing the revenue when you when you collect that risk when you have a receivable you're collecting the revenue and with the payable it's the opposite when you're collect when you are accruing a payable then that's crediting a payable you're debiting an expense now this is the most confusing part of this video I'm sure and I'm sorry I'll go over this on another video in more depth I know we've already got about 20 minutes so it can't go over this too much longer all and bore you guys but basically since we are from 2013 and 2014 we are decreasing AR you see it's being decreased by 853 dollars to decrease an asset you credit it so we're crediting it was credited 853 dollars so we need to debit it back because this is a cash basis tax return we're not messing with AR at all so we're undoing what was done to accounts receivable since it was credited 853 dollars we need a debit at 853 dollars but we can't just change one account we have to do a journal entry we have to credit and debit debits and credits have to be equal so since we are debiting AR back to what it was we need to credit the other part of that account which is sales and that's why we're crediting sales 853 dollars and that's why you saw it on page 1 up at the top and as an adjustment on the profit and loss statement so it's right here we're bursting AR for 853 dollars the fixed assets these are the amounts for 2014 these were the emails for 2013 now remember this one this was the equipment for $75 you can see the difference in this is only $75 we're not gonna put that as a fixed asset that's just there's no reason to do that we're just gonna expense it and that's why we put that on there supplies on the tax return and we also put it under the adjustments right here the balance sheet adjustments right here see here's the revenue here's the expense we were adding from the balance sheet the other two amounts on the balance sheet are on the fixed assets this 9214 in this 7000 see the difference in this and there's a 7 grand those are those are legit assets this was a camera for 7 grand so if we go to the depreciation schedule we can see an acid entry of a canon c300 for $7,000 and then the GMC van for 9214 now with the Canon you can completely ride it off it's equipment that you can ride off at least in 2014 you could write it off as a 179 the GMC van you can only ride up a portion of it 3,460 the remaining amount can be Dupre but not therefore remaining them out but part of it can be fully depreciated appreciate it and then there's going to be a leftover amount so this amount was 179 so that's 346 so the full amount of section 179 is 3 4 6 0 plus 7,000 from the canon camera which equals 10,000 460 this 179 deduction goes on Schedule K the regular depreciation that we saw from that van that was what we saw on page 1 right here 3 4 5 2 total depreciation 3 4 5 2 and that's also that what we made the adjustment on the P&L since it wasn't originally on there so when I got it a balance sheet oops when we go to the tax return balance sheet we have the cash a 465 that we saw we don't have AR on here because it's cash basis we just made that adjustment to the revenue and I'll go over this in a minute this is the fixed assets so we increased the fixed assets by what 9214 plus that's 7,000 so about 16 grand we increased the depreciation by about 14 grand so we have leftover 2302 which is the cost basis left after all the depreciation so if you look at that GMC van if you subtract out if you take the full amount you check out the 179 and the current appreciation you get this amount right here which is the amount left over that has not been depreciated then we go back to the balance sheet we see the deposit which was the same as 2013 so that just goes I mean that continues on right here we're gonna keep that here the liabilities and equity down here this was a payable for some equipment that was fully paid off this is sales tax payable it was a 48 now it's 932 as of the end of the year so you know it's not in here perfect as you can see all these negatives there shouldn't really ever be a negative on the balance sheet I mean unless it's a contra account which none of these are this note payable Balbo was negative 3995 and 2014 it at the end of 2013 it was fourteen five nine three so the difference between those is eighteen five eight nine payments made to Balboa and that's why we got rid of that payable right here he fully paid it off the sales tax payable we're assuming is correct 2007-2013 it it was in put on the tax return what it was eight forty eight and the the 2014 amount was nine thirty two so we're putting nine thirty two right here we're keeping the capital stock and the same the retained earnings you know fixes itself depending on how much income we put in the system and that's how the balance sheet balances now they go back to this balance sheet just to kind of go over it real quick the we've made this right here this line of credit this is his personal line of credit and he has it in his quickbooks for whatever reason so he doesn't as you can see the only thing that is reflected on this account are his payments that's why it's shown that she's negative so in 2013 he had a negative two hundred fourteen thousand and 2014 he had a negative two hundred thirty nine thousand so he made total payments of twenty five thousand since that's personal he's making personal payments on in theory from a business account we are increasing this loan to shareholder right here about 25,000 now we don't want this to get too high because eventually he's gonna have to pay it back you know when the company dissolves or if he sells it this is a real liability or sorry a real asset but personally it's a his liability it's a loan to him and he's gonna have to pay it back eventually so that's a little bit troubling you know we could put it as a dividend to pay taxes on it but we're trying not to do that because as you might know with the corporation if you're paying dividends you're paying double taxes you're paying through the business and through and personally so we're gonna try to pay this back and what else do we have on here the other kind of weird thing on here was the this $500 that's no longer a payable it was a negative 500 payable but if the retained earnings was also off by 500 so they cancel each other out so what you need to do is look at your previous year's net income plus retained earnings it makes sure those equal your current year retained earnings because retained earnings is your retainer your previous retained earnings plus or minus your net income so his previous retained earnings plus his 2013 net income equal this amount which is $500 more than this so we're off and this is $500 more than this this is $500 less than this so I looked back at QuickBooks I did an audit trail and realized that there is a $500 payment entry made into QuickBooks after we printed out between 2013 balance sheets so basically in like June of 2014 someone went back to 2013 and made an entry which is what you should never do you should never go make an entry way back then because that's just gonna screw things up as you can see here but we just canceled both of these out we didn't make an adjustment to the payable right here you know like up here this receivable we had to credit sales we would have had to credit supplies supplies expense or another expense right here because of the difference but we found it down here so we're not gonna do that it's gonna fix itself so this has been 30 minutes this has been a 30 minute long video sorry about that I hope this helps out a little I want to go over and I want to go over the return itself and way more depth but I know 30 minutes is a long time just real quickly I'll say some of these expenses down here most of these are gonna be no but you're still gonna have to read through them because there's always a chance that it could be yes this one right here did you make payments that would require $2.99 the answer is yes and we filed them I'm sure hope we did the answer is yes but some of these this is at the end of the tax year did the corporation own directly an interest in 20 percent more and another domestic partnership or our trust so you just kind of have to read through these to make sure that you're good on these it's usually gonna be no but there there are definitely occasions when the answer is yes so just make sure you look through them they're not as daunting as they seem but you know after all said and done like I said this fifty six seven nine three transfers over that schedule okay which is right here along with the 179 that does not was not in the depreciation number it's only on here so those two numbers are on the k1 which is what you use to file your tax return so I hope that helps a little bit I know it's kind of confusing I'll try to do another video explaining more of the accounting part of that balance shakes I know that can be really really difficult to understand if you're just learning it but anyways like I said if you have any questions you know contact me I'd be happy to work with you and either file your taxes for you or kind of train you as you go through them so I hope to talk to you soon thanks a lot bye