Discussion:Pls help me w/ S Corp taxes
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Discussion Forum Index --> Advanced Tax Questions --> Pls help me w/ S Corp taxes
Discussion Forum Index --> Tax Questions --> Pls help me w/ S Corp taxes
Startingout (talk|edits) said: | 6 June 2008 |
| I'm an junior accounting analyst (not CPA) and was approached by my uncle and aunt to help with their S Corp taxes. They have been given the runaround by a few tax preparers and don't know who to ask. They started a business as a C corp in 2006. They got hammered with double taxation and asked a tax lawyer what they should do, he said switch to S corp, so they did. After that, I don't know what happened, if they went to see the tax lawyer for more advice or not, but the short case scenario is this. They have two accounts, business and personal. They rarely use the personal, and all earnings from the business go into the Corp account, which they use like a checkcard to pay EVERYTHING. Medical bills, their school-age kid's medical insurance and activities fees, gas, car payments, rent, grocery bills, EVERYTHING. Last year they made enough to put aside some for retirement (I'm still in shock that no one advised them to plan for their retirement earlier). Someone told them that SEP-IRA was the way to go, so they put 20k into that. Now, someone else told them (a CPA probably) that the SEP-IRA and medical amounts are not deductible as they HAD NO W-2 in 2007! No one had told them that they needed a W-2 if they were self-employed! Am I right that the amount they took out every month was basically distributions, and the S Corp pays taxes on it? How do they hanlde this situation? | |
| 6 June 2008 | |
| use the search field and review all of the discussions about S Corp wages (or salary or payroll) vs. distribution
all of the options have been enumerated again and again and again | |
| 6 June 2008 | |
| also note that your aunt and uncle are breaking a very important rule about corporations: don't mix personal stuff with business - they will risk 'piercing the corporate veil' and get absolutely no benefit of a corporation.
They need to find someone local to them that they can get competent advice from on a continuing basis - not a one-time shot with an attorney. | |
| June 6, 2008 | |
| Yeah, they have big troubles, I'm afraid. With what little you know, you know more than they do and the folks advising them apparently. You'd want to create a year end payroll and W2 at this point, eating whatever penalties you have to. It only has to have SS on it, by the way, no withholding necessary. That'll cause an amended 1120S and 1040 as well, but it will make it all legal and protect the SEP. | |
Startingout (talk|edits) said: | 6 June 2008 |
| Thanks Kevin5 and JR1, the replies really helped.
In terms of penalties and raising red flags, what's worse? They live and work in NYC. How about if I ask them to just leave the SEP as-is? Can any tax benefits accrue for '08? | |
| 6 June 2008 | |
| one of the most important lessons any tax professional learns very quickly (or should learn very quickly) is that you can't just ignore reality and waive a magic wand over something to 'fix it'. Taxpayers are bound to the actions they have taken, and you have a duty to properly report it on a tax return OR YOU MUST NOT PREPARE THE TAX RETURN.
NO, you can't ignore it and accrue it for 2008. Perhaps they don't want to pay late 941 penalties, in which case they need to back out the SEP contribution and request it back from the trustee. Do the right thing - get them to a competent advisor. That is the best you can do. | |
| June 6, 2008 | |
| There are penalties for improperly investing in a SEP, until the penalties reduce it to zero! or it's removed. Not an option. | |
Actionbsns (talk|edits) said: | 6 June 2008 |
| Startingout, take Kevin and JR's advice and get your Aunt and Uncle to a knowlegeable advisor. If they are in NYC, there is a huge selection of them, all probably listed in the yellow pages I'm sure. Ask for a referral from your friends or associates. The problem with S-Corps is they are so very tricky, not to mention your aunt and uncle have co-mingled personal and business expenses. Reading the hundreds of posts here will convince you that you are in waters that are way too deep for you. When I first started using this board about three years ago, one of my first posts was about how I hated S-Corps because of the confusion I was experienceing. I'm finally getting more comfortable with them and often when a question is asked I know the answer, but don't feel confident enough to post. Don't make their issues any worse by offering flawed advice, you might try to work with their advisor so you learn from the experience. | |
| 8 June 2008 | |
| I'd issue a W-2 for the personal items and gross it up and pay the taxes. I'd do it for the 4th q of 2007. They'll pay interest and penalties and won't do it again. They must have a reasonable salary. The owner who works for an s corp is NOT self- employed. They are considered employees.
If there is a profit in the AAA, then a tax free distribution can be made. | |
| 8 June 2008 | |
| Oh, by the way, NYS has a tax on s corps. It's usually $100.00, but depends on cicumstance. | |
| June 8, 2008 | |
| I agree with Blgrcpa. While they are mixing business and personal expenses, I have a feeling a lot of small businesses tend to do it without realizing the consequences. Either consider it a withdrawal of paid in capital, which would probably make them lose their basis (bad idea). Their personal expenses cannot be claimed as a "business" expense unless you want to gross up these expenses and figure out the taxes and report it on a W-2 as wages. I'd then lump all of those expenses as wages and not whatever else they were classified as before. | |
| 8 June 2008 | |
| All the advice you've been given on this board has been accurate - your aunt and uncle really need to sit down with a tax professional to straighten out their tax issues.
One added wrinkle - is that if they operate their S business in NYC - they still have to pay NYC Corporation taxes AS IF they were a C Corp - as NYC does not recognize S Corp status. There is a site you can go to to find a tax professional- http://www.bookkeepinghelp.com | |
| 9 June 2008 | |
| And realize what they perceive as 'the runaround' from tax preparers may be that this is a BIG mess and they may not be willing to pay what they need to to sort the mess out. And they are going to have to pay a lot. didn't they pay wages when they were a C-corp either? Who prepared those returns? | |
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