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Second opinion] I have a business corporation. If I want to…

Second opinion] I have a...
Second opinion] I have a business corporation. If I want to take out some money from the profit and write myself a check to deposit into my personal account, will I have to include that as schedule C income that I have to pay taxes on? What if I cash the check and keep it as cash. Is that an option? I am also paying taxes on the Corporation income correct? Should I have set this up as a sub chapter S and if so is it too late to change? Please advise what my best option moving forward is. Thanks
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Answered in 1 hour by:
1/12/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name’s Lane …

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I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

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Bear with me a moment while I type up my response. Then if you have further questions we can go from there.

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Is this a C-COrp or S-Corp?

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If a C-Corp, this is a dividend. You pay yourself a salary (required if actively involved with the business) which is a deduction on the C-COrps tax return (1120) so no double taxation there. But taking proit (after the C-Corp has filed it's tax return and paid the tax on that profit) is a taxable dividend (hence the double taxation that we hear about with C-Corps)

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With an S-Corp (where profit is passed through and taxed to the owner on a K-1 REGARDLESS of whether distributed or not p that's why they call it a pass-through), the distribution is not taxable. It just lowers your basis in the S-Corp.

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But with EITHER you are required to pay yourself a salary (which is only taxed once, with either a C-Corp OR an S-Corp).

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You need to file a 2553 to elect S-Corp treatment for your corporation - if you're a C-COrp) ... and in certain cases there is late election relief

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If you'd like I can paste in the IRS guidance (procedure) for electing late S-Corp relief:

..

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Customer reply replied 7 months ago
Hi Lane. Thank you for the response. It sounds like there is no need for me to switch to S corp if I can write off the income I pay myself from the Ccorp, and thus am only taxed on this income on my personal tax return. With that said, do you recommend I stay as a C corp? Do I have to pay myself regularly (weekly, bi weekly or every month in order for the personal income to be considered salary and does the IRS check this? Thank you in advance.

Sorry ... had someone pop into the office.

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For he C-Corp OR the S-Corp, you should be aping yourself a salary (although they will give you a break if you can make that case that, for a young business, you didn't know about profitability until (late in the year, sometime later if the business isn't profitable at all, adjusting FOR the salary of course).

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When you pay yourself you need to do quarterly 941 payroll tax returns and be paying in SS&Medicare at least monthly (depends on the size of your payroll).

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That's the addtiional administrative overhead that goes with being a corporation

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Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit"– That’s the only way I’ll be credited for the work.

But again, if you need more on this, or if I've not understood your question correctly, please let me know.

Lane

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Customer reply replied 7 months ago
Hi Lane. I'm so sorry for the late reply. I've been swamped. I am planning on giving you a 5 star because I appreciate your quality of service. I can tell I will be asking you future questions directly. I wondering though. Is it against the rules of Just Answer to give advice or recommendations to Customers you answer questions for? From your last statement about a c corp having additional overhead, I believe if the goal is to save money on taxes, It is best to switch to an Scorp correct? I'm assuming that an Scorp is not responsible to pay SS and medicare. Also. Thank You for the link and Flow Chart. I incorporated on November 7th. 2017 If I file 2553 now, doesn't that qualify me to avoid any penalty or extra taxation for the the months I've been Incorporated? Thank You very much in advance.

The S-Corp shareholder/employee pays social security and medicare on the salary that's required by IRS for shareholder/employees (that's why they require it, quite honestly).

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But the portion of profits (above the salary and other S-Corp expenses) DOES pass through the k-1 wi no Social Security and Medicare.

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So depending on where are (as it relates to profitability) and what IRS will let you get away with as a reasonable salary, there CAN be some payroll tax savings

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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit") … That’s the only way JustAnswer will compensate me for the work here.

...

Thanks,

Lane

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Customer reply replied 7 months ago
I'm sorry this is going back and forth. I really do appreciate it, but I still have the question about the timing of filing the 2553 since I incorporated only a few months ago. I thought I read something somewhere (now I can't find it) about you have a certain amount of time to change status where you aren't subject to paying any taxes under the corporation status or something to that effect. Last question.

Yes, that's what that flow chart and process was about.

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You are technically asking for late election relief (any time after March 15 of the year you want to election to be effective, is a late election)

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But again, if you'll just work through that flow chart you'll see that they will grant as along as you answer the questions on the 2553 that you've filed and behaved as if this was an S-Corp all along.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane, JD, CFP, MBA, CRPS
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