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Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I have a s corp and for corporate year 2008 I recieved 57,200

Resolved Question:

I have a s corp and for corporate year 2008 I recieved 57,200 in consutling fees under my corporate account. I issued w-2 to myself for 12,000 and paid tax under my individual filing. I had other expenses which left a balance of 40,161 in cash. I did not distribute any of this cash in 2008 or 2009. Do I owe taxes on this cash in 2008 or 2009? I did not file a 1120S for either year. The IRS contacted me and I am filing the 1120S forms today. Do I show 0 tax owed or do I owe taxes, plus interest, plus penalties?
Submitted: 3 years ago.
Category: Tax
Expert:  Jacy replied 3 years ago.

Jacy :

hello,

Customer :

hi

Jacy :

Yes, the corporate profit is taxable to the shareholders each year. When you prepare the 1120S, you will prepare a K-1 for yourself. The K-1 tells the shareholder how much of the corporate income to report on their individual return based on ownership percentage.

Jacy :

The corporation does not pay taxes on its net income.

Customer :

I paid 12,000 via w2, should I have paid more?

Customer :

I owned 100%

Jacy :

There are requirements regarding personal service corporations in this area. I will have to review them and get back to you. The issue is the avoidance of payroll taxes.

Customer :

ok, should I hold this chat session open?

Jacy :

No, I found what I was looking for. The IRS will asses self-employment tax on the earnings left in the corporation (ie. the K-1 amount).

Jacy :

To sum up, you will owe income tax and most likely self-employment tax on the undistributed earnings from 2008. Sorry for the bad news.

Customer :

under my personal account

Customer :

I file the 1120 s and then an amended 1004 personal

Customer :

1040

Jacy :

Yes, the income is reported on your individual tax return. First, complete the 1120S and the K-1, then prepare the 1040X.

Customer :

doesn't sound like being an s corp was a benefit

Jacy :

Actually, the main benefit is to avoid double taxation is you had a C corp. C corp's pay tax. Then the shareholder pays tax on any dividends.

Customer :

what if I filed a 1120 not as a s corp

Jacy :

Then you would pay corporate tax on the profit, and tax again when you pay out the cash to yourself as a dividend.

Customer :

that seems like it would be more 15% on the corporate side and the normal individual rate

Customer :

seems like I'm going to get hit pretty hard with interest and penalties

Jacy :

Corporate tax rate for a personal service corp is 35%

Customer :

I'll stick with the S corp and pay what i need on my amended return

Jacy :

Unfortunately, yes. After you file, the IRS will send you a bill. You can request an abatement of penalties if you can convince them you had a good reason for paying late.

Customer :

just "stupidity" and don't think they'll accept that

Jacy :

Probably not.

Customer :

thanks, XXXXX XXXXX my medicine.

Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience: Nine years individual income tax preparation and consulting
Jacy and other Tax Specialists are ready to help you

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Jacy
Jacy
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Nine years individual income tax preparation and consulting