S-Corp Housekeeping and Raccoons
In this edition of the Flying Point Update we're going to talk about what the S-corp and partnership extension deadline teaches us every year, a handful of S-corp housekeeping items worth fixing before next tax season, and raccoons (specifically, ours). This post is going to be heavy on S-corps, so if you don’t have one, or you’re not considering one, feel free to jump right to the section on raccoons.
Top of Mind
Tuesday was the extended deadline for S-corp and partnership returns. In a lot of ways, this deadline carries more pressure than the original deadline back in March. There's no fallback this time. No extension to file if something isn't quite ready. What gets filed by September 15th is what gets filed.
Also, if I’m being totally honest, the returns that end up on extension tend to be a little messier than the ones that file cleanly in March. That's not a knock on anyone. Extensions happen for all kinds of legitimate reasons. Books that needed more time to close. A K-1 from another entity that hadn't arrived yet. An IRS issue that needed sorting out first. A bookkeeper change mid-year. Sometimes it's simply a business that grew in complexity faster than its record keeping did. Whatever the reason, by the time we finish these returns in September, we've usually spent real time working through exactly where the friction was.
That friction is useful information. I want to spend the remainder of this issue on some common items that tend to surface during S-corp cleanup work. S-corps can be great, but they come with some added administration that is easy to overlook until it’s too late. If you're an S-corp owner, there's a decent chance at least one of these applies to you right now, quietly, without you knowing it yet.
Worth Knowing
Here are four things I routinely run into during S-corp cleanup work, roughly in order of how often they show up. If you converted from a single-member LLC in the last few years, there's a good chance one or two of these apply to you.
Shareholder health insurance premiums. We've touched on this before, most recently in Year-End Business Checklist and Snowshoe Hares, but it's common enough to restate plainly. If you own more than 2% of your S-corp and the company pays for your health insurance, those premiums have to run through payroll. The company pays the premium directly or reimburses you for it, the cost gets added to Box 1 and Box 16 of your W-2 as wages, and it's excluded from Boxes 3 and 5, so no Social Security or Medicare tax applies to it. Most times, payroll providers will also note it separately in Box 14 for reference, which makes life easier at tax time. You then take the self-employed health insurance deduction on your personal return to get the benefit back. It’s all very roundabout tax code at its finest, but if you skip the W-2 step you lose the deduction entirely, even though you genuinely paid the premium. This is a payroll mechanic, not a bookkeeping one, so it needs to be set up before W-2s go out in January, not discovered after. Most payroll providers will know what you’re trying to do and can fix it after the fact, but its best to flag it before your final payroll run, not after.
Accountable plans for home office and reimbursed expenses. his is a very common point of confusion for owners who converted from a single-member LLC to an S-corp. As a sole proprietor, the home office deduction is straightforward: calculate it, and it flows onto Schedule C. Once you're an S-corp, you're an employee of your own company, and the old deduction for unreimbursed employee expenses has been off the table for years. The way to get the same economic benefit is an accountable plan, a written policy that lets the company reimburse you for home office use, supplies, and other legitimate business expenses. It has real requirements: the expense needs a business connection, it needs to be substantiated (square footage for home office, receipts for the rest), and the reimbursement needs to happen within a reasonable time. And the reimbursement needs to actually happen. You’re basically filing expense reports with your own company. Also, a QuickBooks journal entry labeled "home office reimbursement," with no corresponding payment out of the business account, isn't a reimbursement. It's a memo.
Mileage logs and mileage reimbursement for business use of a personal vehicle. This follows directly from the item above, and I’ve been blunt about mileage logs before (see Log or Lose It and Ospreys and also Burden of Proof and White-Footed Mice). As a sole proprietor, you deduct business mileage straight on Schedule C. As an S-corp shareholder-employee, there's no Schedule C to put it on. The only path to the deduction is for the company to reimburse you through the accountable plan, at the standard mileage rate, based on a contemporaneous log. No log, no reimbursement, no deduction. This is one of the few corners of the tax code where there's genuinely no estimating your way around it after the fact.
Reasonable compensation, revisited. My bonus pick, and probably the least exciting item on this list, which is likely why it gets neglected. Right now, with the extended return just wrapped up and this year's numbers still fresh, is a good time to check whether your salary actually kept pace with the year you had. If distributions ran well ahead of wages, or your role or the business changed meaningfully, it's worth a real conversation before W-2s go out in January rather than a rushed one during the last week of December. We walked through the math in S-corps and Largemouth Bass, but the short version is that reasonable compensation isn't just an audit-risk issue. It also affects your QBI deduction, so getting it right cuts both ways. Conceptually, imagine if you had to go out and hire someone to do your exact job. How much would you have to pay them?
Mark Your Calendar
October 15th: Extended individual returns are due. If we filed an extension for you this spring, this is the real deadline, no fallback here either.
January 15, 2027: Q4 2026 estimated tax payments are due. It'll arrive before W-2 season does, so if any of the items above change your withholding or payroll math, factor that in now rather than in April.
Maine Wildlife Facts
We have several peach trees on our property. Most years we eat as many as we can keep up with, freeze a batch, can a few jars, and still can't get to everything the trees produce. Every year, like clockwork, there's a single night, always right after the fruit has just passed its prime, when the raccoons show up and clean out whatever's left. Every fallen peach off the ground, every peach still hanging in the branches. Gone by morning. We've started calling it Festa della Pesca, Italian for “peach festival,” because that's genuinely what it feels like happened.
The name "raccoon" comes from an Algonquian word, "arakun," which roughly translates to "he who scratches with his hands." It's an accurate description. Raccoons have five dexterous toes on each front paw, closer to a small hand than a paw, with enough sensitivity and control to open latches, unscrew jar lids, and pick fruit clean off a branch without much trouble. That sensitivity is also why you'll sometimes see raccoons dunking food in water before eating it. It looks like washing, and for a long time people assumed that's what it was, but the current thinking is that it's more about touch than hygiene. Their paw pads get even more sensitive when wet, so dunking helps them "feel out" whether something is actually food.
They're also sharper than people give them credit for. Researchers have found raccoons can remember the solution to a problem for up to three years without needing to relearn it, which may explain why ours seem to know exactly which week to show up. They're strictly nocturnal foragers, which is why we've never actually caught the Festa della Pesca in progress, only its aftermath, and they're surprisingly capable climbers. Their hind feet can rotate nearly backward, which lets them climb down a tree trunk headfirst instead of backing down the way most animals have to. Handy if you're the kind of animal that needs to get up a tree fast and back down it faster.
All summer long we catch glimpses of them at night, or see their eyes watching from the tree line. We don’t know exactly how many raccoons lurk in the woods around our peach trees, though I’d wager to guess it’s a group of at least six. What I do know is that they finish the cleanup job more thoroughly than we could ever manage.
These Maine wildlife facts have been brought to you by Will (8), Frank (4), and Catherine (2), Flying Point Advisors' on-staff naturalists.
Questions about any of this? Just reach out - I read every email and love hearing from you.
Thanks for reading. You'll hear from me again in about two to three weeks.
- Mike
Disclaimer
The Flying Point Update is provided for general educational and informational purposes only. The content in this newsletter reflects my thoughts and observations on tax, accounting, and financial planning topics, but should not be considered personalized tax, accounting, or investment advice for your specific situation.
Tax laws are complex and change frequently. The information presented here is based on current tax law as of the publication date and represents general concepts that may not apply to your circumstances. Every individual and business has unique factors that affect their optimal tax and financial planning strategies.
Before making any financial decisions or implementing any tax strategies discussed in this newsletter, please consult with a qualified tax professional, CPA, or financial advisor who can evaluate your specific situation. If you'd like to discuss how any of these topics might apply to your circumstances, I'm always happy to chat.