Q:

Subject: Re: S or C Corporation

I am part owner of a C Corporation. I have read your articles and they are quite impressive as to the knowledge one can gleam from them.

I have a few questions that, if you have the time, would be appreciated if you can answer them. Our Corporation is set up as a Nevada Corporation, but doing business ONLY in Wisconsin. Is there any benefit to this at all? We have been in business for a little over a year (this September 2005). Unfortunately due to circumstances beyond our control, we did not file taxes last year with the IRS. What is the penalty for this? We actually evened out with costs and income. We are in the process of finding out if we want to become an S Corporation or remain a C Corporation. Please help….Thank you in advance for your time.

Sincerely,

A:

I’m glad you found my articles informative.  However, they are in no way intended to be a substitute for the services of a competent tax advisor who can better analyze your unique situation and help you come up with the best strategies for your goals.  Trying to run a business, especially a corporation, without a professional tax advisor is reckless and irresponsible and would be grounds for legal action against you by any shareholders who trusted you to exercise proper fiduciary responsibility.

Incorporating in places like Nevada or Delaware and expecting that it relieves you of any tax obligation in your home state is a common and very costly mistake that amateurs make, and a professional can properly advise on.  Regardless of where your corporation has been chartered, if it operates in other states, it will have to file tax returns with those states.  The actual tax owed to each state is usually based on an allocation of such things as sales, payroll, and assets in each state.  In your case, it would be 100% in Wisconsin.

Any penalties you will owe on delinquent taxes will be based on the amount you owe.  Generally, if there are no taxes due, there are no penalties.  However, until you actually file your Federal and State tax returns showing what your actual tax obligations are, IRS and the Wisconsin DOR are apt to assume that you have millions of dollars in unreported income.  So, you need to get your books completed ASAP and have a tax pro prepare your tax return before IRS and DOR come after you.

As I mention on my website, I am a big believer in using a non-December fiscal year for C corps.  If you didn’t start up your corp until September 2004, you might not even be late, depending on what month you choose to end your corporate tax year.  This is one more issue that you should work on with your tax advisor.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you so much Kerry – this information is much appreciated!

 

 

From a reader:

Subject: For your blog

 

Conrad Teitell, LLM (principal at Cummings & Lockwood) has initiated a website to encourage permanent legislation on charitable IRA  rollovers.  The website is at: IraGift.org

You may consider this for your blog.

James W. Fogal, CFP

James:

Thanks for passing that along.  I wasn’t aware of that bill; but it makes a lot of sense.  I’ve long thought that it was crazy that it’s more beneficial tax-wise to donate pre-tax retirement accounts to charity after you pass away than while you are alive. 

I will include this on my blog.

Kerry Kerstetter