Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Convert sole proprietor to S-Corp do the assets get disposed?

taxguyak
Level 3

Do I need to dispose the assets from the sole proprietorship, then enter each asset with the placed in service date being the start date of the S-Corp? 

Labels (1)
0 Cheers
1 Solution

Accepted Solutions
qbteachmt
Level 15

Typically, the assets are part of "contributions" to start the S Corp. Or, the asset is being sold to the S corp. And you didn't mention which type of property this is, or if there are other shareholders.

https://www.irs.gov/forms-pubs/about-publication-551

Have you searched web resources? Such as: https://www.thebalancesmb.com/donating-property-to-an-s-corporation-3193484

 

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post

11 Replies 11
qbteachmt
Level 15

Typically, the assets are part of "contributions" to start the S Corp. Or, the asset is being sold to the S corp. And you didn't mention which type of property this is, or if there are other shareholders.

https://www.irs.gov/forms-pubs/about-publication-551

Have you searched web resources? Such as: https://www.thebalancesmb.com/donating-property-to-an-s-corporation-3193484

 

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post

taxguyak
Level 3

Reading your web link to thebalancesmb.com, in transferring a fully depreciated furniture item from the schedule C to the S-Corp, I would dispose of it listing the day before the S-Corp began.  Then I would enter the asset into the S-Corp with a value of 0, with the date in service being the date the S-Corp began.  For each asset disposed, the price would be the lower of FMV or Cost - total depreciation.  Am I right?

The S-Corp has 3 shareholders.

0 Cheers
qbteachmt
Level 15

"The S-Corp has 3 shareholders."

You're going to need to weigh these options, and understand that if you do it one way, the individuals might have taxable gain and they might not appreciate this scenario. It also depends on the asset type, because we don't want to have a fight over who gave more valuable items to the business startup. And you always want to look for favorable treatment for the individuals and for the S Corp. That is why, for my example of selling an asset to the corporation, one shareholder might own the Well Drilling rig that is being sold into the S Corp, while someone else owns the Grader.

Just as examples.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
sjrcpa
Level 15

Look at IRC 351.

Assets get contributed to the S Corp.

No sale.


ex-AllStar
qbteachmt
Level 15

"Assets get contributed to the S Corp.

No sale."

Doesn't it matter where they are already being held, such as a different S Corp or a partnership that is merging with another to form that S Corp?

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
sjrcpa
Level 15

If they are coming out of a corp, yes. Then they come out of that corp to the individual owner as a deemed sale at FMV. Then the owner contributes them to the new corp.

Here, OP said it was from a sole proprietor.

 


ex-AllStar
qbteachmt
Level 15

Thanks.

I've seen more people going the other direction; getting out of having employees and going back from S Corp to sole operator. Sad.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
kkwhitecpa
Level 2

I have a sole proprietor transferring to a wholly owned S Corp. Is there a way to dispose of all the assets at once on the personal return prior to the formation of the S corp, or do I have to do them individually on the personal return?

0 Cheers
sjrcpa
Level 15

You don't dispose of them per se. You stop depreciating them as of the date of incorporation, using the short year rules.


ex-AllStar
kkwhitecpa
Level 2

Thanks. Where are the short year depreciation options on an individual return? 

0 Cheers
sjrcpa
Level 15

I don't use ProSeries so I can't help you with that.


ex-AllStar