Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

In a nutshell, my question is, how does one deal with the tax

Customer Question
issues involving switching from single-member...
In a nutshell, my question is, how does one deal with the tax issues involving switching from single-member LLC to s-corp during mid-year? Here’s more detail. Last year I converted my business from an LLC to an S-corp. The incorporation date with my (Virginia) state corporation commission was April 23, 2009. I indicated this date in form 2553, but recently, having spoken with an IRS agent, I understand that I could have indicated January 1, 2009. They said I may be allowed to treat my company as an S corp retroactive to January 1, 2009 if I send a letter to them requesting that change, which is what I did about three weeks ago. I’m still waiting for the approval. (I previously was under the impression that I would have to file a Schedule C for January 1 through April 23 and an 1120S for the remainder of the year, but realized that this would be quite complicated.) So prior to April 23 I paid myself via direct profits, and after April 23 via W-2 wages. My question is, assuming I get the
Submitted: 7 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 3 minutes by:
2/1/2010
Tax Professional: Merlo, Accountant replied 7 years ago
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified

Hello rick,

 

Your question did not seem to post completely. It cut off after "my question is, assuming I get the ......"

 

Could you please provide more detail on what you need to know.

 

 

Ask Your Own Tax Question
Customer reply replied 7 years ago
Oh -- right. Here it is:

My question is, assuming I get the IRS approval, how will those pre-April 23 profits be treated/taxed? As dividends to me, in which case I assume they’ll be exempt from FICA? Or should I be on the safe side and pay FICA tax on them? But if I did the latter, wouldn’t I have to file a Schedule C? And if I filed a Schedule C, wouldn’t those pre-April 23 revenues not be counted when determining the profit for the s-corp?

Note that I plan to use TurboTax Business to do my s-corp taxes.

Tax Professional: Merlo, Accountant replied 7 years ago

Hello rick,

 

If you get the approval from the IRS, which you will likely receive, then you will treat the entire year as S Corp status. The withdrawals that you took earlier in the year from the profits can simply be declared as dividends, and you are correct that FICA taxes will not be paid on those amounts. You may have additional dividends from later in the year as well depending on how much profit your business had.

 

With S Corp status, all the IRS requires is that you pay yourself a reasonable salary. Obviously the reason for this is to discourage S Corp shareholders from simply declaring all profits as dividends, thereby avoiding FICA taxes on the entire profits that were earned. But you have indicated that you did start paying yourself a salary in April, so this should not be an issue for you.

 

 

Thank you rick

 

 

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified
Merlo and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 7 years ago
Thanks - that's helpful. My only concern was that the dividends would be about $6K whereas the salary about $22K (which was way lower than my target of $40K for the year, which I wouldn't have been able to meet even if I started W-2 from Jan. 1). Just hoping that the IRS won't insist that the salary is too low and insist that I pay FICA on the $6K.
Tax Professional: Merlo, Accountant replied 7 years ago

Hello rick,

 

There is no way for any of us to know what parameters the IRS uses when judging what they deem to be a reasonable salary. However, I think that a large part of their decision is based on the percentage of what that salary is of the total profits.

 

From the figures your provided, I am assuming your total profit for the year was $28,000 of which you paid yourself a salary of $22,000, or 78.5%. In my opinion anything over 60% of your profits paid as salary is going to be safe. You cannot pay yourself more than what you have in profits, and as long as your percentage of salary is 60% or more, this is not likely to be questioned.

 

 

Thank you rick

 

 

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified
Merlo and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Merlo Your Own Question
Merlo
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
9,783 Satisfied Customers
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad

Merlo is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Can my LLC with US and Foreign members be a shareholder in
Can my LLC with US and Foreign members be a shareholder in an S Corporation? The K-1 would go to the LLC.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
2 Member LLC now 1 Member LLC. What forms to file to IRS? I
2 Member LLC now 1 Member LLC. What forms to file to IRS?I have an LLC that was Me and Member B. Member B has now left the LLC and sold his ownership to me for no consideration. I am now the sole owne… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,458 satisfied customers
I am a personal injury attorney doing a schedule c as we
I am a personal injury attorney doing a schedule c as we speak. . … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Small schedule c business donates fully depreciated
small schedule c business donates fully depreciated furniture to charity. They've been told that the FMV is $1,000. What is the deduction for contributed property? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Client who only sells life insurance received a W-2, has
client who only sells life insurance received a W-2, has income tax withholdings in box 2 and box 13 statutory employee is not checked. Can we still file the income and expenses under Schedule C … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm forming an organization w friends and one of our
Hi - I'm forming an organization w friends and one of our purposes is to raise money for different charities throughout the year... we're trying to figure out if we need to register as a NPO, and then… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I need help for W-2 forms for auto loan asap. File w-2's. I
i need help for W-2 forms for auto loan asap JA: The Expert will know how to help. Please tell me more, so we can help you best. Customer: file w-2's JA: Is there anything else important you think the… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
I don't want to use my social security number on W-9 forms
I don't want to use my social security number on W-9 forms any more. … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
abci168
abci168
Principal
27 satisfied customers
What form is used on the fed 1120s to changed shareholder
what form is used on the fed 1120s to changed shareholder shares from one to another person and state and NYC forms as well… read more
Chad Schoch
Chad Schoch
Bacehlors of Business Administration
20 satisfied customers
FEDERAL INCOME TAX: A SINGLE WOMAN RECEIVES A 2016 FORM W-2
FEDERAL INCOME TAX: A SINGLE WOMAN RECEIVES A 2016 FORM W-2 FROM HER EMPLOYER WITH A TYPO IN THE SOCIAL SECURITY NUMBER. TO DATE THE EMPLOYER HAS NOT PROVIDED A "CORRECTED" FORM W-2. IS THERE AN IRS "… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
I am aware that a foreigner can form an LLC in the states.
Hi,I am aware that a foreigner can form an LLC in the states. My question is; if he/she is living in Japan and wants to live in California by starting a business, is forming an LLC here in the US solv… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
A taxpayer, Form 1040 Schedule C, is on the cash basis. The
A taxpayer, Form 1040 Schedule C, is on the cash basis. The average revenue for the last 5 years is $5,100,000. There is no inventory. The NAICS is 423600Can he remain on the cash basis?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm the principal shareholder in Californian LLC, with 51%
Hi,I'm the principal shareholder in Californian LLC, with 51% of shares. I have a hostile co-owner with 49% of the shares. Since forming the company in '13, we have been operating at a loss. I have be… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
I have 2 US LLCs, both IRS disregarded entities. One is
I have 2 US LLCs, both IRS disregarded entities. One is owned by myself only, resident in Cyprus (Europe). The other one is held by a Cyprus company. Both are in Florida and they own, rent, sell real … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have an S corp that has 2 shareholders. 1 shareholder is
I have an S corp that has 2 shareholders. 1 shareholder is selling out to the other shareholder. I understand how to record the sellers side as far as distributions and taxable dividend for the amount… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
A tax payer formed an LLC in the state of Texas. Can the tax
a tax payer formed an LLC in the state of Texas. Can the tax payer file a schedule C for the federal tax return and retain the LLC status in the state of texas… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
I received two W-2 forms forms from DSHS - state for the
I received two W-2 forms forms from DSHS -Washington state for the care of my disabled son who lives in my home. but I should not be receiving these or having to claim this under irs notice 2014 diffi… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x