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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16580
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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My husband and I owned an S-corp. Because of health issues

Customer Question

My husband and I owned an S-corp. Because of health issues with him, his father, mother and my parents, he had to file bankruptcy and our home was foreclosed on, he was the only one on the home loan. The attorney who handled the bankruptcy suggested we close the S-corp and start a fresh company with just my name associated with it. So in June of 2011 I closed the S-corp and opened an LLC which I thought worked like the S-corp, even have an EIN number.

I can't get a loan for a house myself now because the loan people want to see my tax return for 2012 or payments that were made to me from the company. I need the house now not in 2013 after I file my tax return.

So here are my questions:
Should I have filed my taxes in 2011 for the LLC as a corporation (Form 1065) or should it have been a pass through as a Schedule C?

Now is it too late to go back and structure it as an S-corp (to file an 1120S) with the same name?

How far back can you elect to be an S-corp?

Would it be possible to go back to day one, which was July 1, 2011 and have the company be an S-corp?

Any help would be appreciated and if you could help in fixing all this, I would be happy to pay outside of all this.

Full disclosure: I live in Virginia, I created the company in North Carolina (it's where I thought we were moving), but now it looks like we might be moving to West Virginia. Very convoluted I know! Help? (I realize it's more than one question and I am willing to pay for more than one question.)

Thank you,
Rhonda Morin
Submitted: 4 years ago.
Category: Tax
Expert:  Megan C replied 4 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Let's look at what you did right - you took the advice of your attorney. It does make sense to start fresh, particularly when one spouse has bad credit and one spouse still has good credit.

The loan people realize that you don't have your 2012 taxes done. There's no way to do this until after December 31, and even then you have to wait until late January - sometimes even February - before having the information to file.

So, the key word is "or" - they need your 2012 tax return "or" proof of what the company paid you. Since the company paid you, simply show them the company's records, and show where you deposit money into the bank from the company.

When you have an LLC, the default is that it will be taxed as a partnership if there are more than one owner or as a schedule C business if there is only one owner. You can, however, elect to be taxed as an S-corp. CLICK HERE to get the form you will fill out to become an S-corp for tax purposes.

The deadline for this form is March 15, if you follow a calendar year. So, you would have had to make the S-corp status by March 15, 2012 for the current tax year. However, you can file the form now, so that January 1 you are taxed as an S-corp. You can't go back in time and retroactively become an S-corp for tax purposes.

This could be a costly lesson, as now you will pay self employment taxes on the profit of the business. As you are probably familiar with, an S-corp allows you to take a salary and then you don't have to pay self employment taxes on 100% of the earnings, you just pay payroll taxes for your salary.

The state you open your business in usually isn't a big deal. Your business is portable throughout the US, but you may need to pay franchise fees to the states that you do business in. It's not a big deal.

Reinstating the old company and closing your new one would not help you. Instead, you should just stick with the new company and get your tax situation in the right order.

As for the loan issues - everyone is having issues these days. It's hard to get loans. It's frustrating.

I'd suggest hiring a local accountant to keep your books and file your taxes. As you are a small business, someone should be able to give you an affordable quote. It might be more expensive at first until the accountant gets everything in order. Then, it becomes routine the cost will go down.

Please ask your questions away. Just hit "excellent service" on each reply.


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Megan C and 3 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Nope, no follow up questions. I have the form for the S-corp so I will get that sent in now. I understand the situation now so it will be fine. I plan to file my tax returns on January 2nd. :) Great answer by the way. It is late and I have about 3 other projects going on so I didn't see where to give you an excellent rating but I am thinking I will get a survey or something.

Thank you for your help!!! Kinda put my mind at rest. Will suck to have to pay this money but I have made some REALLY bad decisions in the last 2 years, I am learning. :)


Rhonda Morin
Expert:  Megan C replied 4 years ago.
Glad I could be of assistance to you. Not choosing the right business entity can have severe tax consequences and unless you are an accountant you may not think about this until it's too late.

Best of luck - hope you get your loan!
Expert:  Megan C replied 4 years ago.
Thank you for the positive rating. Please remember me the next time you have a financial question. Simply enter "MyVirtualCPA" in the subject of your question, and it will be routed directly to me. Thank you again for using JustAnswer