Expenses paid for other company

Forum|Forum|2 years ago
May 21, 2024
2 replies
12 views

Hi,

An attorney recommended that a client of mine, for legal purposes, create a second company, company B to separate payroll from his original company, company A. Company A does the work, collects the income and pays all the expenses accept for payroll. So during 2023, company B would invoice company A for payroll. Company B's P&L is a wash. Income equals expenses. The problem is, company A was paying the employee's medical insurance and simple IRA contributions in the amount of around 100K. Company A is showing a 100K loss in 2023 due to the insurance and simple expenses. I'm trying to decide what to do with those expenses. As of now, I'm thinking of reporting the 100K in expenses under company A, since company A paid them, and reporting the 100K loss. The owner does not have enough basis to deduct the 100K so some of it will roll into future years. The hesitation is that these expenses should have been paid out of company B.

Would anyone here object to that?

Thanks

ProSeries Professional

This topic has been closed for replies.

qbteachmt

Level 15

Just to review...

The person is not even making a profit. The entire loss from Company A is the amount of employee benefits. SIMPLE IRA is part of Payroll, so why didn't that run through payroll?

Don't tell worker comp or ERISA.

Don't yell at us; we're volunteers

A

Avs19Author

Level 6

Company A had a bad year in 2023 and would have shown a 100K loss with or without creating a separate company. You're correct, the medical insurance and simple expenses are part of payroll and should have been paid out of company B. The simple employee contributions were paid out of company B but the matching came out of company A. It's a mess but they're now doing it correctly.