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Sole Proprietor to S Corp Mid Year: Can I transfer income from one to the other? i.e., Can I expense out the Sole Prop Income to 0; and add that to S-Corp income

Forum|Forum|6 years ago
June 1, 2019
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I was a Sole Proprietor from Jan – August 2015 (let’s say income is $5000) — I changed it to LLC (S-Corp) from August 2015

Question: Is it legal to transfer/put the income from Sole Proprietor to S-Corp (i.e, in August, can I expense the $5000 income from Sole Proprietor, so that Sole Prop Income =0; and S-Corp income increases by $5000)

I am asking because, having all the Income in S-Corp may save on 2015 taxes, and also is simpler in terms of preparing the tax return

Any insight is much appreciated!!!
–Andy

TurboTax Premier Online

Best answer by Rick19744

You cannot do that. You will need to report all income and expenses in the appropriate time frame and with the correct entity.

I agree it will save on taxes, since the S corp is not subject to SE tax on their earnings, however upon audit, the IRS would certainly not look favorably on this.

As stated previously, the S corp earnings are not subject to SE tax, however, the IRS expects a working shareholder to take a reasonable salary. Just keep this in mind as this is a hot pocket for the IRS. They look for those things.

Rick19744Answer

You cannot do that. You will need to report all income and expenses in the appropriate time frame and with the correct entity.

I agree it will save on taxes, since the S corp is not subject to SE tax on their earnings, however upon audit, the IRS would certainly not look favorably on this.

As stated previously, the S corp earnings are not subject to SE tax, however, the IRS expects a working shareholder to take a reasonable salary. Just keep this in mind as this is a hot pocket for the IRS. They look for those things.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.