Discussion:Lodging for Shareholder/Employee of an S-Corp
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| {{ForumReplyPost|UserID=Dennis|Date=23 August 2006|Text=Commuting expense is not deductible. Residence has no bearing. And if you're looking for scary ...[http://www.tennessean.com/business/archives/05/03/67569995.shtml?Element_ID=67569995 NY Taxes telecommuters] }} | {{ForumReplyPost|UserID=Dennis|Date=23 August 2006|Text=Commuting expense is not deductible. Residence has no bearing. And if you're looking for scary ...[http://www.tennessean.com/business/archives/05/03/67569995.shtml?Element_ID=67569995 NY Taxes telecommuters] }} | ||
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| + | {{ForumReplyPost|UserID=Jc|Date=24 August 2006|Text=Define commuting expense? Travel is certainly deductible, unless the world has gone absolutely crazy, right?}} | ||
Revision as of 03:23, 24 August 2006
Discussion Forum Index --> Tax Questions --> Lodging for Shareholder/Employee of an S-Corp
| 20 August 2006 | |
| I am the owner and only employee of an Illinois s corporation in good standing, and my business is IT consulting. I recently was contacted about a contract in New York city, and after a phone conversation, my company won the subcontract, but will not be reimbursed by the client for traveling expenses. Since my company would have to pick up the expense tab, I'm looking at ways to limit lodging expenses, mainly by leasing or subleasing an apartment, and only returning back to Illinois every other weekend to save on flights.
Since I'm the owner of the corp, I understand that I am disallowed from paying a per diem for lodging and must reimburse actual expenses. How can I rent so that it's fully deductible? Does the corporation have to be the entity that signs the lease, or can I sign the lease myself and have the corporation reimburse me for the rent payments I make? What would be a valid receipt for substantiation in the latter case? What's the best way to go about it? Also, if the corporation is the leasing entity, can I write off rent on the final two months of a 6 month lease even if I'm only using it for the first 4 months? I want to make sure I stay inside the law, but if I can't pay lodging expenses on a pre tax basis than it's not worth it financially. | |
| 21 August 2006 | |
| Your corporation can "lease" the apartment but you may have to register to do business in NY if you are going to be living there with a rental apartment. You can set up minutes for your corporation stating what you will be personally reimbursed for by the corporation if you keep it in your own name versus the corporation.
I think your biggest concern at the present would be to find out from NYC what constitutes doing business in NYC. You may find yourself with some reporting requirements for an extended contract in that city if you lease property. Is the cost of an extended stay hotel significantly more than rental of an apartment in the city? I would avoid nexus in NYC if at all possible due to city as well as state taxes on income derived in NY myself...my opinion only :) | |
Death&Taxes (talk|edits) said: | 21 August 2006 |
| As an employee, you have an obligation to pay New York State income taxes on those days you work in New York. As a non-resident, you do not owe City of New York income tax, but you can be termed a resident under New York rules depending on the time you spend in New York. The IT-203 asks the question, "Do you or your spouse maintain living quarters in New York State in 2005?." I note that when you follow the answer to Schedule 203-B it asks for an address and asks you to check the box for quarters still maintained by or FOR you. The instructions specifically note that you should list any maintained by your employer. The employee is definitely working in New York. The question also asks the number of days. So I don't see how you can avoid tax there individually, but if your corporation is found to be doing business in New York, you now might have to file Corporate Returns for both state and city. An aggressive position would put the apartment in your name, so that the corporation neither owns nor leases any assets in New York. This might help in a test of nexus, but I would certainly talk to a professional about whether there is enough mexus to find your corporation is doing business in New York. | |
| 21 August 2006 | |
| I agree with Death; nexus is defined differently with different states and cities. If the corporation is found to have nexus creating activities, then any wages earned in the State of NY would be subject to state withholding. Also, city taxes as well. If you don't have nexus, this is why I mentioned an extended stay hotel could help offset nexus, then I would not think that wages would be subject to state income taxes. It is best to contact the Revenue department of the borough in which you will be doing the consulting work to determine if you can escape nexus and then not have to file returns in that state :) | |
| 22 August 2006 | |
| As far as New York is concerned, the entire contract would be subject to tax whether Jc set foot in the state or not. Under the circumstance he describes, he will have NYC corporate taxes (no S recognition) NYS corporate franchise fee, and NYS income tax. If he is in NYC more than 183 days he will have resident tax there as well. | |
| 22 August 2006 | |
| Thanks for your responses. From everything I've read, there is nothing that would prevent me from being liable at both the personal and corporate level for state tax, respectively. As far as the city tax goes, this is from nyc.gov:
Except for certain exemptions, the General Corporation Tax is imposed on all domestic and foreign corporations that are engaged in any of the following four activities in New York City during their calendar or fiscal year: * Doing business; * Employing capital; * Owning or leasing property, in a corporate or organized capacity; or * Maintaining an office. Lo and behold, I don't come within a mile of any of the "certain exemptions," so my corp's profit (times some adjustment for percentage of revenue earned there, I would hope), will be taxable at the oh so modest 8+% rate. At the personal level, the instructions seem wildly ambiguous to me. "Permanent place of abode" is the key phrase in the instructions. On a 6 month sublease through the corporation, I think I'd be fine claiming non-resident status. On a year long lease through the corp, I'd probably just try to keep it out of the courts' hands and file as a resident. To be honest, it's not news to me that I'm liable for all of this tax -- I was really only concerned with making sure that the rent will be considered deductible at the corporate level. One new question I've come up with in all of this, is that since NYC itself (not NYS) doesn't honor NYS or federal S elections, and is based on NYS income, do I have to pay both corporate AND personal income tax on S corp profits (which are passed through to personal at the state level and not passed through at the city level)? That hardly seems fair. | |
| 22 August 2006 | |
| The rent is deductible at the corporate level. If you avoid NYC residence you avoid NYC personal income tax. If you pay yourself enough to avoid corporate profit, you escape the corporation tax except for the minimum. As far as the state is concerned there is no way out, but you do get a credit on your Illinois return. | |
| 22 August 2006 | |
| I've got to assume that a month to month lease can't possibly be upheld as "permanent place of abode" in court. A year long lease would probably help turn the case in the city's favor (not that it takes much, I'm sure). My evil side would wonder what audit process NYC uses to contest residency claims, and how aggressively they do so. My less evil side would be very interested on any cases that are considered precedent for reclassifying non-residential filings as residential.
As far as corporate tax goes, it seems silly to avoid an 8+% tax on corporate profits by paying 15+% in payroll taxes on any extra salary. And, at least, if non-resident status wins, and I file a NYS S election, corp profit distributions would still only be taxed once, regardless of their being taxed by 3 different authorities :) | |
| 22 August 2006 | |
| Good (but scary) reading on this subject:
http://www.nysdta.org/Determinations/820509.det.htm While I don't think that this case in particular dooms me since it's kind of a slam dunk, it does discuss the fantastically vague term "permanent place of abode," which is somehow, yet certainly not by legal definition, different from "domicile." So, according to New York State and City law, you can concurrently live "permanently" in two different places. This looks like yet another great example of a tax authority going to court in extremely favorable circumstances to try to establish precedent. What is really frightening to me is that if NY can rule you're a resident, then what's stopping the IRS from coming after those travel deductions you made getting back and forth. | |
| 23 August 2006 | |
| Commuting expense is not deductible. Residence has no bearing. And if you're looking for scary ...NY Taxes telecommuters | |
| 24 August 2006 | |
| Define commuting expense? Travel is certainly deductible, unless the world has gone absolutely crazy, right? | |
