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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience:  Taxes, Immigration, Labor Relations
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I questions are related to both our business and personal taxes.

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I questions are related to both our business and personal taxes. We have three business:1.A local publication business that we started in 2008 April as sole-proprietors and then encorporated it as S-corp in June 2009. 2. A candy-wrapper service started in April 09 as S-corp. 3. Cruise Planners franchise as sole-prop in June 09. All of the 3 businesses are running at losses. We file our taxes as married-joint and all our businesses have 50-50 partnership; and my wife is on unemployment benefits. I cannot afford to hire a CPA to do our taxes; I am going to do them myself on turbo tax. I have not taken any salary from the businesses - I was told that an S-corp has to take one? Please let me know how to calculate salary and what other steps should we follow to file our taxes error free to maximize our benefits. Another question is if I should convert all the businesses into sole-prop as I feel it was a mistake to incorporate them. I appreciate your help! Happy New Year!
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

As long as you have S-corporation - the IRS expect you to file a tax return regardless if the business has any income or even any business activities.

If you want to close S-corporation - you should file a final tax return - http://www.irs.gov/pub/irs-pdf/f1120s.pdf - check the "Final return" box in the header.

If you file a final return for S-corporation for 2009 - you may treat your business as a solo-proprietorship in 2010.

 

As a solo-proprietorship - you need to file a separate schedule C for each business.

 

There is no tax benefits from having S-corporation if there business has no profit.

Losses from S-corporation are deductible only up to your contribution into the S-corporation and loans your provided to the S-corporation.

 

That is correct - the IRS expect that the S-corporation pays you a reasonable wages for services you provided for the S-corporation, however - as long as your S-corporation has no income - you do not need to pay yourself any wages.

 

Let me know if you need any help.

 

Customer: replied 4 years ago.

Thanks for your reply. Please clear these questions:

Can I do the final tax form using Turbo tax?

If I continue to maintain the S-corp status for one of my businesses which has the least loss(I am expecting it to be profitable next year), what complications I might face since I would like to avoid using a CPA as long as I do not make enough profit from it?

I was told - In order to avoid audit, one must pay oneself a salary by taking a loan even if the corporation is not making any money - is this true?

I have spent about $600.00 in incorporating my two businesses 6 months ago, now weighing the benefits and losses from your knowledge please let me know if it is okay to convert them into sole-prop?

I have this basic knowledge of filing taxes - do you think I will be able to file my taxes successfully with turbo tax software?

Thanks.

Expert:  Lev replied 4 years ago.

Yes - you may use Turbotax - but need a business version - see here -

http://turbotax.intuit.com/small-business-taxes/

I am not sure what "complications" do you mean - if you want to do tax filing on your own - there is nothing wrong with that - but you need to educate yourself.

I still suggest to have a tax professional to verify your filing before sending to the IRS.

 

I was told - In order to avoid audit, one must pay oneself a salary by taking a loan even if the corporation is not making any money - is this true?

That is correct - the IRS expects that the S-corporation pays you a reasonable wages for services you provided for the S-corporation, however - as long as your S-corporation has no income - you S-corporation is not required to pay wages to owners.

 

I have spent about $600.00 in incorporating my two businesses 6 months ago, now weighing the benefits and losses from your knowledge please let me know if it is okay to convert them into sole-prop?

Generally - startup costs will have to be written off, or amortized, over 15 years. However if you close S-corporation all start-up costs related to creation of S-corporation may be deducted.

 

I have this basic knowledge of filing taxes - do you think I will be able to file my taxes successfully with turbo tax software?

All tax filing are done by people who learned that business and are improving the knowledge. You may learn as well, however as you do not have experience - while not required - it would be wise to have a tax professional to verify your filing before sending to the IRS.

 

Customer: replied 4 years ago.

I cannot afford to hire a tax professional at this time, please let me know the steps I should take to ensure that the taxes are filed corretly since I have one business that was sole-prop until june 2009 and then converted to s-corp later.

I have spent about $600.00 in incorporating my two businesses 6 months ago, now weighing the benefits and losses from your knowledge please let me know if it is okay to convert them into sole-prop? I prefer to maintain the status so....what I mean to ask here is - will I have to incur more expenses/inconvenience if I maintain my s-corp status of the companies? I am interested in maintaining s-corp for one of the companies that is expected to make profit next year. How much profit do you think a company should make so that s-corp status is beneficial to it?

 

Expert:  Lev replied 4 years ago.

Your intention to avoid hiring a tax professional and save the money is understandable and fair.

However as long as you will be the one who do the job you will be responsible for accurately of the information provide. There is no magic - and if you want to be sure that all tax filing are in good shape - you need to educate yourself.

 

General approach is to start a business as a solo- proprietorship with minimal overhead.

As the business starts to take up - you may register a LLC and legally separate the business. As the net income would overpass ~$40,000 - you might select S-corporation treatment - there would be additional overhead to file S-corporation tax returns and employment tax returns. The benefits would be - saving on employment taxes on part of income distributed as dividends.

If S-corporation do not have any net income or such income is small - there is no tax benefits - so you might be selected S-corporation treatment premature.

Yes - there are additional expenses to file S-corporation tax returns, and as soon as you will start to pay yourself wages - you will need to deal with employment taxes - that will be additional expenses (or additional work for you if you will do on your own).

 

Let me know if you need any help.

 

Customer: replied 4 years ago.
Thanks. One last thing I would like to know is this: I recalculated my expenses, and figured out a profit of about $1000. I would like to pay myself salary for this amount. Please let me know if I can do the payroll using turbo tax and submit when I file my taxes or should I do it before I file my personal and business taxes. Please explain this step in details.
Expert:  Lev replied 4 years ago.

You generally must withhold federal income tax from your employees' wages. You withhold part of Social Security and Medicare taxes from your employees' wages and you pay a matching amount yourself. To figure how much to withhold from each wage payment, use the employee's Form W-4 and the methods described in Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide .

 

In general, employers are responsible to report federal Income Taxes, Social Security, and Medicare taxes on Form 941, Employer's Quarterly Federal Tax Return and Instructions .

Note: Employers who have an employment tax liability of $1,000 or less for the year may file Form 944, Employer's Annual Federal Tax Return and Instructions , instead of Form 941, Employer's Quarterly Federal Tax Return. Eligible taxpayers will be notified by mail.

Report FUTA taxes on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return and Instructions .

 

TurboTax software is designed for income tax preparation - not for employment tax.

For employment tax filing - you need accounting software - for instance - QuickBooks - http://quickbooks.intuit.com/ - however if your situation that might be better to file it by hand.

 

Customer: replied 4 years ago.

At this point I have about 1000 dollars - when do I submit the w-2 to the govt.? After I file my taxes or before?

Is it a good move or not?

I accept your answer, please let me know these details. Thanks for your help.

Customer: replied 4 years ago.
I asked for Turbo tax because it does have the option of creating w-2. I have 1000 at this time, this could be for the current quarter, do I let them know that I did not have any income for the previous quarter or is it understood?
Expert:  Lev replied 4 years ago.

Yes - you may use TurboTax to print W-2, however you need a different software to file an employment tax return - form 944 - you will report annual wages paid because your total employment tax liability is less than $1000.

You also may not use printed W-2 form to send to IRS - instead use forms that may be purchased in most office supply stores.

http://www.irs.gov/pub/irs-pdf/fw2.pdf - W-2 form should be sent to the IRS by the end of February.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience: Taxes, Immigration, Labor Relations
Lev and 7 other Tax Specialists are ready to help you
Customer: replied 4 years ago.

Thank you for your time!

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