How to manage 2018 payments and bills received in 2019 for a business closed in 12/2018

Forum|Forum|5 years ago
July 5, 2020
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I closed my S-Corp in CA in 12/2018. However, I received additional payments for work done in 2018. I also had additional bills to pay for services provided in 2018, where payments were made in 2019. Currently I work for a different company as a W2 employee in NJ. How do I handle the payments and expenses received in 2019 for the closed S-Corp?

Anonymous

IRS closing a business checklist

https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business-checklist

how to handle 2019 income and expenses depended on what steps you took. did you file articles of dissolution with the state? did you file form 966 (A corporation must file Form 966 if it adopts a resolution or plan to dissolve the corporation or liquidate any of its stock) with the IRS? did you notify the IRS you were terminating your S-Corp election? did income received in 2019 exceed expense paid in 2019?

you may have stopped doing business, but if you didn't file dissolution papers or take steps required by the state to legally dissolve the Corp it would still exist and those 2019 items should be reported on its return for 2019 which is now late (due 3/15/2020 and you have over $1,000 in penalties for late filing).

what is actually done in some cases is to hold the books open for 2018 and in effect convert it to accrual basis to pick up in 2018 income and expenses paid in 2019.

some research I found has OP's arguing that the expenses are not deductible by you since these were corporate expenses. others say they are but again exactly what they are and how to report them varies. Some argue the Arrowsmith should apply. A SCOTUS decision that says theses items are capital in nature and get reported on schedule D. I myself find this hard to justify reporting items that would have been ordinary income/loss as capital. still others suggest to report as ordinary income on form 4797.

there will likely be other comments on this subject.

annamission

Level 2

how would this apply to a sole proprietor? closing business in end of 2019, had some income from job paid 2020 I will get a 1099 - can i just add this to my 1040? or do i need to file another sched c?

GloriaL

Level 7

Yes, because most sole-proprietors are considered cash basis (meaning you report your income when you are paid), you would include any income that you received in 2020 on your 2020 tax return. You will still need to report this income on a Schedule C, since that income will be subject to self-employment taxes.

To enter this income in TurboTax:

Open or continue your return.
In the search bar type Schedule C and click the Jump to link in the search results.
Answer Yes to Did you have any self-employment income or expenses?
Follow the onscreen instruction