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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 34108
Experience:  Retired (mostly)
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I am a hairstylist and S Corp since 12/2009

Customer Question

I am a hairstylist and S Corp since 12/2009 and have not made any income as a company due to health reasons. I recently hired a tax specialist whom gave me no real advice as to my best options to stay a scorp or switch to a better option. The amount of money and fees I had to pay for filing my taxes from 2009-2011 in total were were close to 7500.00. I am out done and cannot continue like this. he made me an employee as well as filed for unemployment insurance and now I owe the irs even more money. I'm confused how I can owe anything if I didn't make anything. I am currently working on bulding my business what type of business should I be filed as sole prop, llc, corp etc?
Submitted: 2 years ago.
Category: Business Law
Expert:  Attorney Arcadier replied 2 years ago.
The best structure to pay the least amount t of taxes is an s corp. If company made no money, you dont pay any taxes. If you paid yourself wages, then you pay the unavoidable taxes which is 15% medicare ssi, income tax which can be up to 28%, and city and state taxes. But the best structure for a small company to maximize tax benefits is an s corp.
Customer: replied 2 years ago.
would this be the best structure for a company more established than mine? i am very disappointed to have paid 7500 when there are other small business owners that I know that paid substantially less than me as a different entity...and they made money...
Customer: replied 2 years ago.
I am a freelance/salon hairstylist and have been filed as a S Corp since 12/2009. Since I filed as an S Corp, I have not made any income as a company due to health reasons. I recently hired a tax specialist to file my taxes from 2009-2001. I asked his advice on the disadvantages or benefits being a s-corp as an unestablished business. He offered me no real advice as to my best options to stay a scorp or switch to a different type of entity. He advice was to quickly file so not to incure more late fees than what already existed, so I complied. The amount of money and fees I had to pay for filing my taxes from 2009-2011 in total were were close to 7500.00. I want to know the best option for type of business structure for an UNESTABLISHED business. He made me an employee as well as filed for unemployment insurance and now I owe the irs even more money. I'm confused how I can owe anything if I didn't make anything. My need is to cut filing fees cost until my business is more established. What type of business should I be filed as sole prop, llc, corp etc?Relist: Answer quality.
Expert:  socrateaser replied 2 years ago.
Different attorney here. Sorry for any delay. My colleague appears to be offline. You asked:

I am a hairstylist and S Corp since 12/2009 and have not made any income as a company due to health reasons. I recently hired a tax specialist whom gave me no real advice as to my best options to stay a scorp or switch to a better option. The amount of money and fees I had to pay for filing my taxes from 2009-2011 in total were close to 7500.00. I am out done and cannot continue like this. he made me an employee as well as filed for unemployment insurance and now I owe the irs even more money. I'm confused how I can owe anything if I didn't make anything. I am currently working on building my business what type of business should I be filed as sole prop, llc, corp etc?

A: As the sole shareholder of an S Corporation, you could have waived any salary due to not generating any net revenue. This would have avoided any payroll taxes. if you have already filed your tax returns, you could amend them and undo what has been done. However, as you have already filed and treated yourself as receiving a salary, changing that position after the fact could trigger an audit, which is probably not what you want. But, going forward, you may be better served to not take any salary until you have some reasonable income.

Re changing your business to an LLC or a sole proprietorship, this would certainly avoid having to treat yourself as an employee, and you could avoid having to file a separate corporate tax return. So, as long as you are prepared to pay tax on your net profits, an LLC is probably a much better choice for your circumstance.

However, before you take the step to make this change, you must check with the cosmetology licensing board and ensure that you can practice your business as an LLC -- because some jurisdictions do not permit anything other than corporation professional practice.

Hope this helps.

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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 34108
Experience: Retired (mostly)
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