Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
To qualify for S corporation status, the corporation must meet the following requirements:
A C corp, so sorry. Shares are freely transferable.
If you are selling the shares then that is a a sale you would report when you file your return.
If you are looking to transfer the shares as a gift, you would need to report that on form 709 as a gift. You may or not have gift tax to pay depending on the value of the shares.
So sorry about the first info on S corp.
Must be late for me.
is there a problem if he is the only shareholder running the corporation. and he is not u.s citizen nor resident
No that is not a tax problem. C corps are not like S corps and do not limit the owners
this is a restaurant business. since he is the owner of the restaurant, does it means he has to get compensated? w2 or 1099-misc?
A ccorp is taxed on its own first and then the dividends paid to the shareholders are also taxed. If he is not performing services then he would not have to receive wages (again like in an S corp that requires salary paid to 100% owner)
The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
what if he wants to get 1099-misc for consulting service he provided to run the restaurant? does it sound logic to you?
He would not get a 1099 MISC as a consultant especially if he is 100% owner.
He can receive a wage and receive the W2.
i see. is dividend required to be distributed to him if there is a profit?
but he is not u.s citizen nor resident, dont have s.s number, how can he get w2?
He would need an ITIN (Individual Tax Identification Number)
He will need this for thetransfer
Even if a 1099MISC was issued he would need the ITIN for that
so he can get w2? he doesnt have working permit or visa to work in U.S though
He can be employed in Canada by the restaurant
i dont understand that
Another expert said he thinks the 1099MISC woudl be alright
but i thought you said if he is the 100% owner, 1099-misc is not right
If he is not in the US but still providing a service to the business then that is no different than being here
I felt I shoudl just tell you what another expert told me. I think it is risky but they said they did not see it that way.
is another expert CPA?
Not this one
That does not mean they are wrong or I am wrong
it just means I am being more cautous
so what is the right procedure/steps?
If he is working for the C corp then he is an employee. It would seem illogical to claim 100% owner is just an adviser
so here is the case. eventually he will be the 100% owner after i made the transfer.
i wanna know should i issue him a w2 or 1099? or none?
If he is not owner yet the 1099MISC is more than OK
so not w2, not 1099-misc. is that what you mean?
I mean if he is not the owner then you can and should issue him a 1099MISC if he is consulting and you pay him more then $600 for doing so. When he becomes the owner then he would receive a W2 and 1099DIV (providing he receives distributions over the wage amount) for the distributions of profits
but i thought Corporation can not issue w2 to him because he is not u.s citizen nor resident, and dont have working permit or visa to work in u.s, and dont have s.s#
Many US non citizens earn income from US sources, they are not resident in the US and they do not have work permits or SSN.
but how can corporation issue w2 to him if he doesnt have s.s#
ITIN is required
Individual Taxpayer Identification Number
i was told my CPA, w2 can not be issued to him.
by my cpa
How was the CPA going to issue a 1099DIV or MISC without any number? The individual will need the ITIN
She did told me about ITIN, but she told me W2 can not issue to him even if he has ITIN. because he is not authorize to work in US.
He woudl not be working in the US he is working in Canada
what you mean?
He is in Canada correct
he is in u.s
Sorry , your initial post said "he is not u.s citizen nor resident"
he is not, but he is in u.s. he told me he can come to u.s with candian passport
he is Canadian citizen but stays in u.s
So he wants to "visit" and you would transfer the shares to him, he then wants payment for consulting but ....
Stays in US
For how long?
let me find out
That is fine. I think we got off your initial question anyway
You asked can you transfer
You will need to either report as sale or gift
If you are just giving him these shares then you will report using 709
If you have not used up your lifetime credit (little more then $5mil) you will not owe gift tax
When you find out more about him you will want to post any question relating to his tax responsibilities then.
so he will be in u.s for 3 months or so, then go back to canada, and come back to u.s within 1 month
so as you said, he can apply for ITIN by filling out W7. correct? and then from there, Corporation can issue him a W2?
That is correct
how can i notify IRS regarding change of ownership from me to him?
Sale or gift reporting notifies the IRS. The attorney would take care of any legal transfers then.
i thought i have to write a letter or something to let IRS know owner is changed
The filing you report for sale or gift would do that
so in order to file 709 form, he will need to have ITIN first
No, you can give away anything to a nonresident alien without them having an ITIN
oh. so ITIN is only for Corporation to issue W2 to him?
The ITIN is for US tax reporting (which he will need for the C corp ownership) and for teh C corp to issue him any documents
is the corporation tax return with foreign shareholder/owner (1120) is the same as its owned by u.s owner?
The C corp pays its own tax using the 1120 and it is no different than for a US ownership
so his w2 is also gonna be same as the u.s resident? does he file 1040NR or 1040?
It depends on his residency status and time here
for filing w7 purpose
for filing the 1040 vs 1040NR
i mean when he file w7, doesnt he need to file a individual tax return with it? is it 1040 or 1040NR
The 1040 or the 1040NR depends on if he is a resident alein or a nonresident alien
In this case, he is candian citizen, so nonresident alien, right?
Not necessarily and I am afraid I have to remind you of the need to stay on your specific question. Just Answer requires that I remind you to post a new question when your question changes from the original.I do not want to get in trouble with Just Answer
sorry, i didnt know i need to address all my questions in one topic. because as you can see, all questions related to each other. i thought i just need to type in starting question, then we can start from there
The residency of the person in question can be a complex area and requires calculating time in the US.
Just because he is a Canadian citizen does not mean he is not a tax resident of the US
so based on the days he is in u.s, correct?
so when he apply w7, he should file 2013 tax return with it, right?
so the transfer can be done without ITIN, but w2 has to wait until he got his ITIN.
You are most welcome. Your positive rating is always thanks enough.