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Q&A: Deduction for Defunct S-Corporation Expenses?

· S-Corporations

I had this situation last year: One of my clients dissolved his corporation, and then some unexpected corporate expenses arrived. He paid them personally because the corporation was no longer in business.

Guess what?

No deduction. The corporation can’t pay the expenses, because it no longer exists. The owner can’t pay the expenses and then deduct them, because he didn’t incur those expenses inside a business that he operates in his personal name.

If you are going to shut down your S corporation,

  • consider keeping the business open for an extra period of time to ensure you receive all income and pay all expenses, or
  • make sure to resolve all potential accounts payable prior to closing the business.

Since you incur costs for keeping the S corporation open (tax return filings, state franchise taxes, etc.), you need to weigh the additional costs against any lingering accounts payable or other expense issues that could arise.

If you are considering shutting down your S corporation and would like some guidance on this, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.

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