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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience:  Over 15 years of experience in public accounting
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I own a small business. The business have been losing money

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I own a small business. The business have been losing money almost every year but i have been paying myself a couple of thousand dollars a year in w2 in order to take advantage of the EITC. Since there is no other employee in my business but myself, and set up a payroll system just to pay myself once a year is expensive and troublesome. Is there other easier way to accomplish the same thing? Please be specific with your answer.
Submitted: 2 years ago.
Category: Tax
Expert:  USTaxAdvising replied 2 years ago.

Hello,

 

I see a couple of good options. One being using QuickBooks and the payroll module/add on. You can buy QuickBooks for approximately $200-300 and the payroll module is around $200 as well. So total cost here is around $400-500. (estimated)

 

The QuickBooks payroll module is very easy to use and is very easy to prepare your annual/quarterly payroll tax returns as well as your annual W-2 and W-3. You can even prepare your 1099s in it if applicable. See the website here for more information - http://quickbooks.intuit.com/ - I believe this is the best accounting/payroll system out there for small business. (It is also probably the most popular)

 

You could also use an excel based calculator which will assist you in preparing your payroll checks and tax deposits. The downside of these calculators is that it does not assist in the preparation of your Payroll Tax Returns Form 941/940. These are the ones that most people find confusing and QuickBooks makes it a snap.

 

Payroll is one of the most complicating tasks for small business owners which really adds no value to their business. I recommend QuickBooks. It is easy to use and update. Once you run the process a few times it becomes routine and there is very little room for error.

 

I hope this helps you. Please let me know if you have any further questions.

 

Best regards,

 

 

Customer: replied 2 years ago.

I wasn't really asking for payroll method advice. Giving my situation, I am more looking for a way to qualify for EITC without doing a formal paycheck and w2 for myself. Example: Can I still qualify for EITC if I just do a 1099 for myself in stead of a paycheck?

Expert:  USTaxAdvising replied 2 years ago.

Oh I see what you were getting at.

 

Yes you can still qualify for the EITC without a W-2. What type of business do you have? a S-Corp, LLC, or C-Corporation?

Customer: replied 2 years ago.
It's LLC. I am a real estate agent. all my income go into my LLC. In 2011, there was only about $10,000 income to the LLC. Minus all the expenses and tax deductions, it probably will not yield any net taxable income. Without doing a formal paycheck and the w2 for it, is there other ways to qualify for EITC? I do meet all other EITC qualification.
Expert:  USTaxAdvising replied 2 years ago.

Since this is an LLC (I am assuming a single member LLC) you should not be issuing yourself a W-2.

 

The LLC would not issue you a W-2. Instead you would report the income and expenses from the activity on your Schedule C of Form 1040. If you drew money from the LLC that is completely okay as you are not taxed on distributions from the LLC, you are taxed on the earnings/profits. This would give rise to self-employment income and thus you would still qualify for the the EITC as you would still have earned income. You will still qualify for the EITC assuming you will meet all the other criteria which you state that you have met above.

 

One critical fact that you outline above is that the LLC is running continuous losses. Using the methodology above would not provide for earned income if the business did in fact have a loss, thus you would not qualify for the EITC.

 

Basically you will not qualify for the EITC if you do not have earned income. Merely issuing yourself a W-2 to from your single member LLC to "create" earned income would be breaking the rules. You will need a profit from your LLC before you will become eligible for the EITC.

 

I hope this helps, please let me know if you have any further questions.

 

Best regards,

Expert:  William Ellis, CPA replied 2 years ago.
Hello and thank you for allowing us at Just Answer to assist you. You could have your LLC elect to be taxed as a corporation then elect S-Corp status early next year for 2013. Once this is done, you would report your income on Form 1120S. While showing the expense for Officer's salary, you could report it on your Form 1040, Line 21 Other Income. You'd also need to include it on Schedule SE to properly pick up the self-employment taxes. The remaining income would be reported on Sch K-1 to you and shown on Sch E, page 2. You can also continue to deduct self-employment health insurance doing this. It is too late to make the election for S-Corp status for 2012, so you should wait until January to do so.

Thanks,
Bill
Customer: replied 2 years ago.

So for 2011 tax return which I am trying to do now, since I have not formally pay myself wages, I will not be able to find a way to qualify for EITC? If your answer is yes, then is it a way to retro a 1099 or pay check to myself. I did withdrawn cash from company account for personal use.

Expert:  William Ellis, CPA replied 2 years ago.
No. As a single-member LLC, you report your income and expenses on Sch C. You are not supposed to issue a W-2 or 1099 to yourself. If you were to try this, you could open the door to a review or audit by the IRS.
Customer: replied 2 years ago.
So the owner of a single-member LLC, not elected to tax as a S corp, will not be able to get EITC at all?
Expert:  William Ellis, CPA replied 2 years ago.
That's not what I'm saying. I'm saying you should not issue yourself a W-2 or a 1099. I just looked at the directions for EIC, and there's no reason someone with Sch C income shouldn't qualify for EIC if your level of income permits it.
Customer: replied 2 years ago.
So in my situation, filing with just schedule C, with just about $10,000 gross income, after expenses and standard tax deductions come to about minus 2,000 net income, I'll still qualify for the EITC?
Expert:  William Ellis, CPA replied 2 years ago.
I'm not sure. I'm not at home right now to check the equation.
Customer: replied 2 years ago.
I'll appreciate your follow up later
Expert:  William Ellis, CPA replied 2 years ago.
With no adjusted gross income, you'll get no EIC. You should have a net operating loss, so if you had taxable income in the past two years, you can carry the NOL back. You would have to carry it back to 2009 first. If you didn't have taxable income those two years, you can elect to carry the NOL forward.

Thanks again,

Bill
Customer: replied 2 years ago.
In my situation, just with one qualified dependent filing as head of household, what is the minimum AGI in order to qualify for EIC?
Expert:  William Ellis, CPA replied 2 years ago.
$1 of income nets a $9 credit, but, if you are considering backing off some of your deductions, you may still find yourself subject to self-employment tax.
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
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