Discussion:LLC return filed using 1120S...no way, right?

1) Prior CPA's charges for 940, 941, and UCT-6 (FL payroll tax) filing.............because, for an Llc they are not needed.

2) The client was told to pay the FL State payroll tax (which is he is exempt from because he is a single-owner LLC

One other point.... the client has a solo 401(k). The prior CPA made the company profit sharing limited to 25% of wages....this would be true for an S-Corp but...........sincethe company is a single-owner LLC, wouldn't the company sharing portion be limited to 20% of net earnings to the owner?

This guy filed his company as a single-owner LLC. Thus, he is taxed as a sole proprietor. ( Or so I thought). I received his tax returns and saw that the prior CPA filed his business return as an S-Corp (on 1120S). Apparently (per JR1) this is ok, as long as they "elect". What is needed to "elect" to file a registered LLC as an S-Corp.

Not to be a master of the obvious, but a sole proprietorship, without electing otherwise, is considered 'disregarded as a separate entity'. Which means, as you may know, that the company is truly a 'pass-through entity', and not regarded as a tax-paying 'individual'. Such as partnerships, to some extent, and as a sole proprietorships. To make this short, please let me know if this is a 'one' owner business, or something else.

Mike

Can I "elect" to have the one-owner llc STOP being taxed as an S-Corp (even after this one was filed) and file him next year as an LLC?

By no means am I attempting to undo this. Just wanted to make sure the elections have taken place. And if not.....I was not here.............

And no, Sfrey, if he's an S, you can't just go back. You'd have to liquidate him like any other S. So, probably the place to start is Willy's suggestion, make sure this guy is even valid as an S and then report back. And...that does remind me that someone noted a few weeks back that if the 2553 was properly filed, that by itself serves as the 8832 as well.

Mike

Willy, (I love you), But, I just said what Willy said.... check your client's elections...

Having learned about LLC taxation, your next bit of homework is to determine whether or not these elections were properly made by your client. Calling the IRS may be one way of finding out. Asking the client for copies of the forms he filed to make the elections would be another way.

If the elections have been made, then the owner will need to be paid wages, just like a corporate officer. Corporate distributions will be treated like S distributions or dividends, if no S election has been made.

Once the election is made, you can't just go back and start using a Schedule C. You can make a new election, but a new election will be treated like a corporate liquidation with all the attendant tax effects that you had better know about before going down the road, because it could be costly.

If the prior CPA DID, in fact, file the election correctly....then, the client paid WAY TOO much in PR taxes (paid PR tax on the net income of the company).

If the prior CPA DID NOT file the election correctly....then the client should be taxed as a sole-proprietor...thus, the PR taxes paid on the wages AND the net income of the company would be correct.....It would mean the prior CPA just filed on the wrong form...right? So, the company would retain its "disregarded" status and it would continue life as an Llc with no PR taxes, just SE tax on the total earnings to the owner...right?

If your new client has a tough time getting the answer or no answer from the prior CPA, I would get a POA (power of attorney) from your client, covering 2004 or 2005, using whatever EIN and name was file d on the 1120s and call the Practioner's Priority Hotline and determine what the client has on file with the IRS.

Also check with sunbiz.org and see if the corporate resolution is onfile with the State of Florida. Some of the articles of incorporation will give you a hint as well how this entity is to be taxed.

Boy would I hate to amend 940/941/uct-6's for 4 quarters and w/2's. And to amend 941's, you have to file a 941C with a current 941, correct? So, if the entity does not report 941's, then it will be alot of work to have IRS disregard the former 941's. UUGGHH; I hate payroll taxes as they are, let alone amending them.

Good luck...

How many years has the prior accountant filed the 1120S? If more than 2 years, then I would assume that the entity is regarded as an S Corp in the event that the LLC client did not receive any notices from the IRS indicating that the wrong tax form was filed. I have recently been reading the IRS regs regarding LLC's and making the ELECTION to be treated as a corporation/S corporation. If this election was made, then the IRS regs say that in order to Elect for different tax treatment (as sole proprietorship), the taxpayer would have to wait 5 years.

WillyB

Clearly incorrect, right?

Is it true that one cannot simply file an 1120S, and be considered an S-Corp? It is my understanding that the election must be made during the first 3 1/2 months of the tax year on form 8832. The 2553 is just for C-Corps electing to be S-Corps, and the 8832 is for disregarded entities, and other company forms electing to be taxed as a Corp, right?

If an S election is not made by the 75th day of the proposed S corp year (usually a calendar year, but not necessarily), then the election is effective for the following year. This used to be an iron-clad rule. More recently, late elections have been allowed for various reasons and under various rev. rulings. I just file by the 75th day for my clients to keep it simple.

I should appreciate the service trying to be more user friendly I guess. But I am too old-school.

Was it really "long ago?" I did not realize that.