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
Hope this helps.
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