Deducting S-Corp Moving Expenses

Technical topics regarding tax preparation.
#1
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Client is scorp, one owner/employee - moved from California to NY to build the business in NY, what’s the proper way to deduct the moving costs? Split between business and personal, deduct the business on 1120S and flow the personal expenses to the w2?
 

#2
JR1  
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I've split the biz part where it seems reasonable and deduct it. Personal I just book thru officer loan until time to settle out distribution. W2 has enough trouble! No reason to add more....lol.
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#3
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Thanks JR!
 

#4
makbo  
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I'm curious what portion of the expenses you think are business related. Is there office furniture to move? As you know, travel, lodging, and costs of moving household goods are all non-deductible personal expense on the federal return, and costs of moving out of California are not deductible on the CA return.
 

#5
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Yes she had a home office in the house and only moved for work purposes. I was going to apply the same percentage used for home office and vehicle to the moving costs for the home and vehicle.
 

#6
makbo  
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countless wrote:Yes she had a home office in the house and only moved for work purposes. I was going to apply the same percentage used for home office and vehicle to the moving costs for the home and vehicle.

That doesn't sound correct to me, to just use a percent allocation, but that's another discussion. However, if you don't put the reimbursed moving expenses on the W-2, how is EE/ER FICA tax going to be properly calculated and paid?
 

#7
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I mean do you have a better idea instead of using the same percentage that’s used to allocate the business use?
 

#8
JR1  
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Mak, why is EE/ER FICA involved in this? It'll come from profit distribution. And any way that seems reasonable to compute the biz portion....is reasonable. Move on, countless. Nothing to see here. lol
Go Blackhawks! Go Pack Go!
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#9
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I thought it was reasonable too.

It’s alright, this isn’t my first TaxProTalk rodeo lol
 

#10
JR1  
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LOL.
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#11
lucyko  
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Another method which seems reasonable would be to allocate the moving expenses between S-corp business expenses and personal on the basis of gross billing weight for each of the two categories . After all that is how the moving and van line industry calculates the invoice.

My guess is the S-corp business portion is going to be small unless we are talking about an auto being one of the items shipped . I would think the office furniture and related equipment for the business would be very small compared to the personal items being shipped . It may come down to an educated guess on the weight as the move has already transpired .

Once the split is determined, I agree with Countless (Post # 1 ) to deduct the business portion on 1120 S and flow the personal expenses , assuming reimbursement , to the W-2 . As a result of TJCA, employers including S-Corp., who reimburse EMPLOYEES' for moving expense are required to include the reimbursement amount as taxable income and include on W-2 . If the S-Corp chooses not to reimburse for the personal items then it's a non-deductible expense item for the S Corp.
 

#12
JR1  
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Exactly! And offset via profit distributions.
Go Blackhawks! Go Pack Go!
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#13
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I do like the idea of allocating based on weight, but the question then is how would everything be weighed? It’s not feasible. And yes there were multiple autos moved as well. I’ll grab a copy of the invoices and see how it’s broken out. But I do like that viewpoint. Thanks for the feedback.
 

#14
lucyko  
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I would guess that NY. did not conform to TJCA so you might have an add- on of moving expenses as an adjustment to income for NY state and city . I didn't realize you had multiple auto's shipped.
 

#15
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Yes she might get it at the state level. I’m going to do an analysis on the best tax benefit either on w2 or as nondeductible for the personal portion. Especially because New York City has the almost 9% scorp rate. Might be better to get the extra moving cost in schedule A since she’s a high earner. Thanks again!
 

#16
lucyko  
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Countlless wrote

"Might be better to get the extra moving cost in Schedule A since she's a high earner "

How are you going to get the extra moving cost on Schedule A as moving costs are reported as an adjustment to income ?
 

#17
makbo  
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JR1 wrote:Mak, why is EE/ER FICA involved in this? It'll come from profit distribution. And any way that seems reasonable to compute the biz portion....is reasonable.

If the business is trying to deduct the moving expenses, which was the premise of the OP, then it would be a taxable fringe benefit to the employee. But yes, if the S-corp is just being sloppy and paying personal shareholder expenses out of the business account, then treating it as a distribution makes sense.

It would be far more business-like for the individual to pay the expenses (the bulk of which are personal) and then get reimbursed for the small portion that is business-related.

JR1 wrote:Move on, countless. Nothing to see here. lol

Fortunately, not everyone agreed with you.

For example, in post #11 the W-2 treatment is endorsed for certain circumstances. By treating the moving expenses as taxable employee fringe benefit, the S-corp lowers its taxable income at the state level, which was mentioned in post #15. And if the OASDI wage limit for the year has already been reached, then the FICA on the wage income is much lower.

lucyko wrote:My guess is the S-corp business portion is going to be small unless we are talking about an auto being one of the items shipped . I would think the office furniture and related equipment for the business would be very small compared to the personal items being shipped .

I agree with that -- other than a desk, chair, computer, and maybe a bookcase or table, is there really that much furniture in the home office? This is why an allocation based on square footage is not reasonable, since the home office does not share with the other rooms a typical assortment of household items (mattresses, dressers, flat panel TVs, clothing, kitchenware/dishware) that make up the moving expense.

Now, the auto is a different case -- I would consider deducting shipping for the auto to be aggressive, but I can't say it's wrong. But what percent to use for business? Doesn't the business-use percent of the auto change every year? And what if the auto is driven by the owner, instead of being shipped? Remember, travel and lodging for the move are not deductible for federal tax.

"moving costs are reported as an adjustment to income" -- not under TCJA (except military), but some states did not conform.
 

#18
JR1  
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I never assumed the biz would try to DEDUCT the personal portion. Paying it and deducting it are different. Of course it's not deductible, so use whatever way you want to get to that result.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#19
makbo  
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JR1 wrote:I never assumed the biz would try to DEDUCT the personal portion. Paying it and deducting it are different. Of course it's not deductible

But it is deductible as a taxable employee fringe benefit. Like health insurance paid for a shareholder. Or, like allowing an employee personal use of a company vehicle -- the full expense of the vehicle is still deductible to the company, even if there is personal use.

"A fringe benefit is a form of pay for the performance of services. You can generally deduct the cost of fringe benefits." Pub 535.

The only thing that changed under TCJA is that moving expense reimbursement is no longer excludible from the employee's pay. But surely (hopefully?) you understand that it was still deductible to the employer, as it continues to be.
 


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