I changed my business from a sole proprietorship to an S corp on Jan 1, 2019. I am not sure how to handle the transfer of assets to the corporation for depreciation purposes.
I have a professional appraisal of the various assets, equipment, furniture etc. Some assets have been fully depreciated.
Must I enter each of those assets individually as they were listed on the 2018 Schedule C or can I use a lump sum for the fully depreciated items? Should I use the appraised value or the residual value from the 2018 Schedule C?
I made an attempt to address your basic inquiry in your other post but, essentially, you should seek professional tax guidance with respect to this transaction as well as ongoing operations going forward.
With respect to assets, you should show them as a disposition (but not sold nor for which you otherwise received compensation since this is a nonrecognition event) on your personal income tax return.
The assets you contribute to the corporation generally receive a carryover basis (increased by any gain recognized by you) which becomes your basis in the stock you receive, in return, from the corporation.
Again, you should consult, in-person, with an experienced tax professional.
if FMV is less than adjusted basis you must select either the rules under IRC Section 362(e)(2)(A) or Section 362(e)(2)(C)
if FMV is greater than adjusted basis, use adjusted basis
fully depreciated lump sum. don't know what's included, there are no specific tax rules on this. however, if some of these assets will be sold or otherwise disposed of, then you need to keep details either by listing them separately, so if sold or disposed of the data entry required is easier. or keep the details manually
regardless. follow tagteam's advice. see a pro. operating an S-Corp is more complicated and has many more tax rules that must be followed. mess up and you will regret converting.
It's rather simple really. First, you will close the sole proprietorship permanently and forever on Dec 31, 2019. Then the S-Corp will be "open for business" on Jan 1, 2020. So the only thing you wll be dealing with on your 2019 tax return will be the closure of the sole proprietorship, and that's it. You won't be dealing with the S-Corp stuff on a tax return "at all" until 2021 when you will be filing your first 1120-S Corporate tax return. So first I'm going to cover what you will "have" to do to close the sole proprietorship SCH C business on your 2019 tax return so that you can "transfer" assets to the S-Corp when you file the 1120-S a year later. I'll cover "briefly" how you'll deal with it on that 1120-S you'll be filing in 2021.
Closing the sole proprietorship
First, as you start working through the SCH C business in TurboTax, about 2-3 screens in click the checkbox for "I sold or otherwise disposed of this business in 2019" and then press on "as if" nothing changed and you still own it. You will report and claim all business income earned, as well as all business expenses paid in 2019. Then you get to the business assets.
You must work through each individual asset one at a time. You'll have a screen for "I stopped using this asset in 2019" and on that screen you'll click YES to indicate that you did stop using it in the business. The disposition date of the asset will be Dec 31, 2019. When asked "Special handling required?" you *MUST* answer that question YES. If you answer NO, then you will be "FORCED" to enter a sales price and other sales information. YOu did not sell the asset. You are indicating that you removed the asset from the sole proprietorship for personal use, on Dec 31, 2019. That date will be your "disposition date" when you are asked for that.
Take note that you must do the above paragraph for each and every asset listed in the business assets section. Even if that asset is already fully depreciated, you *have* to do this.
Now if you claimed any vehicle use in your sole proprietorship, even if that busines use was less than 100%, you must also show disposition of the vehicle. It doesn't matter if you plan to transfer ownership of the vehicle to the S-Corp or not. Until you show the disposition of *ALL* assets in the sole proprietorship including vehicles, the sole proprietorship is *not* closed.
Now, once you have completed the 2019 tax return in it's entirety *and* it has been accepted by the IRS (assuming you elect to e-file it) then it's *extremely* *important* that you print that tax return in it's entirety. I don't mean just the "forms required for filing" or the "forms to keep for your records" either. I mean *absolutely * *everything*. More than likely the printout will exceed 100 pages quite easily. This printout of everything will include all tax forms, calculation forms and worksheets. You will "NEED" this detailed information when you complete your first 1120-S corporate return.
Generally, for someone's first year owning a corporation of any type (C-Corp or S-Corp) we "HIGHLY" recommend seeking professional help for at least that first year. I still advise that now. So weather you attempt to tackle that first year on your own or seek professional help, either you or the professional helping you will "NEED" that complete printout of your 2019 return. If you don't have it, or are unable to provide it, you risk finding yourself in a never-ending nightmare with the IRS from which you will never awaken.
Before we get to the initial S-Corp filing, are you with me so far? Taking my time here so as to avoid "information overload".