Discussion:LLC return filed using 1120S...no way, right?
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| 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.}} | 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.}} | ||
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| + | {{ForumReplyPost|UserID=Sfrey006|Date=19 April 2006|Text=Thank you everyone. You all have been extremely helpful. I will post the resolution....}} | ||
Revision as of 20:25, 19 April 2006
Discussion Forum Index --> Tax Questions --> LLC return filed using 1120S...no way, right?
| 19 April 2006 | |
| I have just picked up a small Llc as a client. The prior CPA filed the Llc return on the form 1120S. You can't do that right? By the prior CPA encouraging the client to file as-if they were an S-Corp would allow the company the "flexibility" of the Llc but, the Payroll Tax advantages of the S-Corp. Additionally, cost/charges would be un-necessarily incurred by
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? | |
| 19 April 2006 | |
| Should I amend the client's return? If I don't amend...am I allowed to file next year's business operations on Sch C (in standard single-owner Llc fashion)? | |
| 19 April 2006 | |
| Hang on. He did the check the box to tax that LLC as an S. You're an S now. Read some of the old threads on the topic. Like you, I don't care for this method of becoming an S, but he's an S. So think of him that way. It's ok. | |
| 19 April 2006 | |
| So...the prior CPA had the client pay payroll taxes on the wages ($65k) AND the net income of the company ($41k). This means that the client over paid payroll taxes by $6,273...right? (41,000 x 15.3% = 6,273) | |
| 19 April 2006 | |
| I understand that a C-Corp can elect to be an S-Corp but....are you sure an LLC can? | |
| 19 April 2006 | |
| There are a lot more questions to ask your client. Is this LLC an S-Corp, a partnership, or a sole proprietorship? Did they file the 8832 election? Was it a C-Corp to begin with? Did the C-Corp file a 2553 to elect to be treated as an S-Corp? | |
| 19 April 2006 | |
| Definitely no payroll tax on the profits, so that is an error. Oh, my, and he assessed the full SS tax on the extra 41K? No wonder you doubt! That's wrong and goofy! Amend to retrieve that 6273 that was paid in error, and treat him like any other S with his 65k salary. | |
| 19 April 2006 | |
| Gmikeg.....
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. | |
| 19 April 2006 | |
| Technically, that form 8832, but I'll lay big odds that that's one IRS doesn't care about, and will accept the first filing as an election. Others will ring in on their thoughts. I've never used the check the box deal, so I understand it, but never had to live there. In your case, you've got a bigger mess on your hands if you want to try going back and saying that he wasn't an S. PR tax returns have been filed, the 401k has been funded, etc. That's an easy, leave it alone, call... | |
| 19 April 2006 | |
| Hi,
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 | |
| 19 April 2006 | |
| But he has elected by filing the 1120S. He's no longer disregarded. Sfrey, call meant, it's an easy call. He's an S. If you feel it necessary to file the 8832, then do it, but I'll lay odds that IRS considers him an S now. No way, Gmike, do you want to even try to undo this. You're going to unfile payroll filings? And unfile the W2? And revoke, with penalties, the 401k? I think that would be disastrous and takes months if not years to straighten out. He's an S. Get over it. Could be worse..he could be a C! Or have real estate in the corp.! | |
| 19 April 2006 | |
| This is a one owner business. I believe he should have never filed the taxes as an S-Corp. But..the CPA did.
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? | |
| 19 April 2006 | |
| JR1,
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............. | |
| 19 April 2006 | |
| With everyone being professionals and dealing with this matter, I assume everyone has read and understood the instructions to forms 8832 and 2553. First, it must be determined that the entity has properly elected S corporation status. Then we go from there. | |
| 19 April 2006 | |
| Well, did jump to a couple conclusions, Willy...good point. If that's not the case, you've got a whole 'nuther sityation 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. | |
| 19 April 2006 | |
| Bur seriously, I simply can't catch up to someone else's return......I tried my best...
Mike | |
| 19 April 2006 | |
| OK Bite me, LOl ,,,
Willy, (I love you), But, I just said what Willy said.... check your client's elections... | |
| 19 April 2006 | |
| That should have read: OK, JR1, bite me, but...........and here I go with the AOL crap.... | |
| 19 April 2006 | |
| Sfrey, forgive me for butting in late. I think you have some homework to do. First, you need to understand how LLC's work. When you set up an LLC, by default a SMLLC is taxed as its owner is, i.e., if owned by an individual, it gets taxed either on Sch C or Sch E, if owned by a corp, it gets folded into the parent corp as a division. A multi-member LLC owned by two or more entities (individuals or corps) gets treated like a partnership. THAT IS THE DEFAULT. But if you don't like that method, as JR & others have pointed out, it can be changed. It gets changed by ELECTING to be taxed like a corporation on Form 8832, "Entity Classification Election." Once an election is made to have the entity taxed like a corporation, a second election is necessary to elect to have it taxed like an S corp, using Form 2553. (I think the IRS has recently combined the elections so that both the entity election and the S election are made on a single form, but I am not sure about that, so you need to look it up if it applies.)
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. | |
| 19 April 2006 | |
| Yeah, that's what we said, only with less words.. :) . Good explanation. | |
| 19 April 2006 | |
| That was an extremely great explanation..... I have a feeling this CPA didn't file the form 8832 or 2553. I have the client calling this prior CPA to find out.
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? | |
| 19 April 2006 | |
| Yes, if no elections were file, it should have been taxed like a proprietorship. You will need to amend a slew of returns (941/940, 1120S, 1040) | |
Mtmckeecpa (talk|edits) said: | 19 April 2006 |
| S,
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. | |
| 19 April 2006 | |
| Thank you everyone. You all have been extremely helpful. I will post the resolution.... | |
