Question

Corporate Liquidating Distribution for Individual Assets under $2,500 (safe harbor)

Forum|Forum|3 years ago
October 31, 2022
2 replies
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Hi TurboTax!

I was set up as an S Corporation (not an LLC with an S Corp status) and my new CPA informed me that I should just be an LLC with an S Corp election. My CPA said I should do this because there are less requirements like no annual meeting minutes.

My CPA said doing the switch would cause me to dissolve my corporation in the eyes of the IRS and that we'd need to assess the FMV of my assets in order to see if I would have to recognize any capital gains on them. But my company didn't purchase any individual assets over $2,500 during its lifespan and my CPA says that any assets under that amount are just treated as expenses under safe harbor rules.

However, I have assets like this lawn mower I purchased for $600 that is obviously an asset and is currently selling for around $800. In this example, is the $200 difference a capital gain I need to recognize? Or is my CPA correct in saying that my lawn mower is an expense (as it is under $2,500) which is why I can transfer it into my own personal name without recognizing capital gains on it?

I don't doubt my CPA, but I just want to understand why this is and have confidence in it if I am ever audited.

Not A Product Question

Critter-3

Ok ... what a bunch of dodo (and a way to pad his bill). What is the big deal to have one corporate meeting with yourself once a year and document the minutes which can be as short as one minute. I would NOT change anything at this time ... it is a waste of time and effort. You can find generic minutes by just googling it if you ever actually need it.... none of my clients over the last 30 years ever has needed them for any reason.

M

Mike9241

find a new CPA.

B

Booking ItAuthor

Is my CPA wrong on advising me that I won't have capital gains on assets expensed under the safe harbor rules? Or are you disagreeing with the advice to switch from an S Corp to an LLC with an S Corp election?

Critter-3

Is my CPA wrong on advising me that I won't have capital gains on assets expensed under the safe harbor rules?

You don't have depreciable assets since you deducted the total cost as an expense. If you sell the item now for more than zero all of the sales price is simply regular income to the business.

Or are you disagreeing with the advice to switch from an S Corp to an LLC with an S Corp election? Worse advice ever since they are both exactly the same for federal income tax purposes so why would you change for no reason ?