Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for April 8th, 2009

Another clueless S corp owner…

Posted by taxguru on April 8, 2009

Q:

Subject: C Corporation and S Corporation question

S-Corporation.  I did some research and I believe that I qualify as I am the only officer/member.  My questions are:

1.       Based on the researc0h I did, it seems that with a c-corp I can wait until November to file my taxes (no gains, only losses) which is the anniversary date.  Is this correct?

2.       If the s-corp falls into the same category as individual income tax, I assume that with an s-corp, the deadline to file the taxes is april 15th.  Is this correct?

3.       Assuming number 2 is correct, if I wait until after April 15th to convert my c-corp to an s-corp, do I still have to file the taxes by November or can I wait till the following year (January through april 15th) to file the taxes?

I am totally clueless with this and the IRS website is somewhat confusing.  Please help me.

Thanks so much!

Have a beautiful evening!

A:

You need to be working with a professional tax advisor before you do anything else because your research is obviously not working.  Just from the items you mentioned, there are several misconceptions you have, and I’m sure you have dozens more that you didn’t mention.

Here are just a couple of issues that you are confused about.

Tax Year – If you remain a C corp, its tax year can be set to end at the end of any month prior to the one year anniversary of the incorporation.  There are many reasons for using a tax year other than December 31, as I mentioned on my website.    The corp tax return (1120) or an extension (7004) is due to IRS by 2.5 months after the end of the tax year. Once you have filed your first 1120 and established the tax year for that corp, it is set in stone.

If you do successfully convert to an S corp, its tax year must go from January 1 through December 31 and its filing deadline will be the next March 15.

While there are some exceptions for filing the S election (2553) late, the normal deadline is by March 15 of the year in which you want it to take effect.

Before you take the step of electing to be an S corp, you most definitely need to work with an experienced professional tax advisor to see if that is a good idea and to make sure you understand completely how to operate your corp (C or S).  You are guaranteed to get yourself into serious trouble if you continue to try to muddle through these things on your own, if you haven’t already.

Good luck.

Kerry Kerstetter

 

Business Plan Pro

 

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Posted by taxguru on April 8, 2009

The Top Tools for Tax Season – I have not changed my opinion that do it yourself tax programs are dangerous for a lot of people because of their reliance on GIGO (garbage in, garbage out).  However, I’m passing on this PC Magazine review of several of the consumer programs as a means of covering the other side of the argument.

 

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Confused S Corp owner

Posted by taxguru on April 8, 2009

Q:

Subject:  Filling my s-corp and 1040 returns together

Hello,
 
I found your email via an article you wrote on http://www.taxguru.org/corps/scorp.htm. If you don’t mind I would like to ask you if it is possible for me to include the money I spent or invested in my s-corp on my 1040 taxes form that I will be filling from my regular employment. I have a regular job where I work 40 hours a week and I have my S-corp that I am investing in with my personal money from work. I am still working on my business and hence have not generated any revenue in my business.
 
Thanks, I appeciate your time and answers.

A:

You need to be working with a professional tax advisor before you do anything else because you have very obviously gotten in over your head by setting up an S corp without having a clue as to how it works.

Just from the items you mentioned, there are several misconceptions you have, and I’m sure you have dozens more that you didn’t mention.

Money you invest into the S corp isn’t a deductible item. However, if there is a net operating loss inside the corp that can be passed through to your 1040, you may be able to have some offset to your W-2 income.

Before you go any further, you most definitely need to work with an experienced professional tax advisor to see that your S corp tax return is prepared properly and then that your 1040 is also prepared correctly.   You are guaranteed to get yourself into serious trouble if you continue to try to muddle through these things on your own, if you haven’t already.

At this late date, you should be filing an extension for your 2008 1040 in order to give yourself enough time to get things done properly.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you for the advice. I will contact a tax advisor. It’s for a website that I created and the only monies or funds that I have spent are $1000.00 and my monthly hosting account which is $10.00 per month.   

 

TaxCoach Software: Are you giving your clients what they really want?

 

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