Expenses paid personally related to sale of s-corp

[chrisandrewausten]

I personally paid some expenses (broker fee, legal) related to the sale of my business. They are not reported on my K-1. How do I claim them? My business accountant say his personal tax system has a way to apply them "behind" the Schedule E. How does Turbo Tax handle these?

[gloriah5200]

Partners in a partnership can deduct Unreimbursed partnership expenses paid in the course of doing business on Sch E page 2. It is entered in the partnership k-1 section in TurboTax

Shareholders in an s corporation would either consider the shareholder's unreimbursed s corporation  expenses paid in the course of doing business a contribution to capital or ask to be reimbursed by an accountable plan. 

Personal expenses paid for the sale of the business can be an adjustment to basis when you show the sale of the business on Sch D.

[chrisandrewausten]

My business accountant says that they would belong on Schedule E as they should go against regular income, not capital gains, and that his personal tax return system allows him to apply them "behind" the schedule. Does TT not allow for this? It is a pretty big hit as I am in the 37% tax bracket.

[JeffreyR77]

This is additional investment you made into the corporation incidental to its sale and therefore increases your taxable basis.  Adjustment on Schedule D is the cleanest and most appropriate place to include this cost.

[chrisandrewausten]

OK, I am sufficiently confused. My business accountant says, for Sch E: 

"Like I said, I have a check box that says allow a loss to partnership or S Corps and Input it there. Not sure about TurboTax" and 

"Should lower the income reported on the K-1.  Ordinary income."

You guys say Sch D, but I can't tell where to put them and TT doesn't prompt me to add them anywhere. Plus, the expenses would go against cap gains, not income, as they should. The sale was an asset sale so part of proceeds added to ordinary income and some went to cap gains. Typically expenses go against ordinary income, so sch E makes sense to me. Since Part II of sch E is for Partnerships and S-corps is it possible that the expenses allowed for Partnerships is also allowable for S-corps and that is why his tax program notates that?

Sorry - I'm just really confused!!

[JeffreyR77]

The easiest way to resolve your situation may be to amend your S-Corp return to amend your K1.  Then these expenses will flow to where they should.