Discussion:C-corp problems
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Actionbsns (talk|edits) said: | 6 June 2006 |
| I have a new client with C-corp status. There are some giant problems with this client and I'm hoping to get some serious help from all of the experts over the next couple of weeks, so please keep an eye out, I appreciate this forum so much in these cases.
For starters, she's used the corp like a sole proprietorship. No payroll and she's paid for everything personal with a corporate check booked to distributions in QB. I'm thinking all of this needs to roll to payroll for 2005 and we need to do quarterlies and a W-2 and she'll have to attend to the resulting penalties. Does anyone have a better suggestion for her? Second, she paid to move her daughter here (Hawaii) from Seattle, using corporate monies. Daughter is a corporate officer, but not a stockholder, and was working for the corp until Mom got tired of the daugher's actuall freeloading. She also paid for tons of personal expenses for the daughter currently booked as Professional Fees on the expense side. Daughter is now back in Seattle, Mom has custody of the baby. Do I need to roll that into payroll as well? Third, she has about $10,000 of contributions to various charities and churches, paid through the corp. Can the corp take the contributions? This is just what I've found from a relatively cursory look, I need to prepare the returns for 2004 before I can even delve into this one deeply. Thanks for any help and look for more on this issue. Paula | |
| 6 June 2006 | |
| Had a recent Federal audit of a C Corp that wrote personal expenses through the corporation. At year end the tax preparer would classify the total as management fees and take the income on a Schedule C of the individual shareholder.
The IRS agents lectured the client regarding the proper way to handle payroll within the corporation, but allowed the corporate deduction and individual Schedule C. Charitable contributions are limited to 10% of corporate income each year. The balance can be carried forward. I contend "there should be a test" before anyone is allowed to operate a business. Basis knowledge would save them so much time, trouble and money. L. | |
| 6 June 2006 | |
| I contend "there should be a test" before anyone is allowed to operate a business. Basis knowledge would save them so much time, trouble and money.
L. While I tend to agree with your assesment of a need for test to operate a business, Lark. I worry that if this does in fact become mandatory we may be out of business ourselves. The wonderful thing about this country is that you are allowed to fail and be stupid, likewise you can pay guys like us to fix it for lots of money. | |
| 6 June 2006 | |
| There should at least be a test before incorporating. One question test: Do you have an accountant? | |
| 6 June 2006 | |
| Perfect!, JR1
Think I will write a book and give it to all my new-business clients. That will be the first "step to success" Sea-tax - Don't think a little knowledge will put us out of business. Most clients can't understand why we do what we do. They are just glad we do it. Actionbsns, are you all set? Kind of got off the subject, sorry. L. | |
Actionbsns (talk|edits) said: | 6 June 2006 |
| Lark, it's always interesting to see where the conversation goes even when it gets off topic. I don't think I'm all set, but I have some things to consider. Interesting to be able to take her "distributions" to management fees though, I hadn't thought of that. We might go that route for this year, but I already told her she has to put herself on payroll for 2006. Sounds like I can do the same for the daughter, although I'm not so sure she'll be very happy with her mother when she gets a 1099 for management fees too, especially if she already did her tax return. Doesn't sound like they have much of a relationship though so .......
Thanks for the suggestions and if there are any more, I'm open to hearing whatever I can. This saga will continue I'm sure. Paula | |
| 7 June 2006 | |
| What is the nature of the relationship between your client and the C Corporation? | |
Actionbsns (talk|edits) said: | 13 June 2006 |
| My client is the sole stockholder. After meeting with her the other day, it seems she thought she was an S-Corp. She has had absolutely no counsel on the use of the corporation or its type thanks to internet resources which is how she incorporated. | |
CTurner555 (talk|edits) said: | 13 June 2006 |
| Is this the first year of the C Corp? If she intended S Corp status, there is relief by filing Form 2553 under Rev. Proc. 2003-43 if it is filed within 24 months of the due date of the election; and within 6 months of the due date of the original return. | |
Actionbsns (talk|edits) said: | 15 June 2006 |
| Actually the paper work I have indicates a return was to be filed for tax year 2004 even though they weren't using the corp at that point. So I think we've missed the 6 months rule. The client stopped by my office yesterday to tell me she's killing the corp. So now I just need to get the 2004 and 2005 returns done, and let her know she'll still have one due for the first half of 2006. This is a great exercise in a client's lack of knowlege. | |
