Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

ii am a contractor, i have a corporation and file 1120s for

my corporation the earnings after...
ii am a contractor, i have a corporation and file 1120s for my corporation the earnings after i pay emplyees and expenses is my income but the 1120 reports it on a k-1
and that disqualifies me for my earned income credit. my earnings are between 25,000 and 28,000 every year and i have two dependents. how can i file my taxes and qualify for my credit?
thank you
Show More
Show Less
Ask Your Own Tax Question
Answered in 13 minutes by:
7/9/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor :

Hi Juan - Is it the investment income limit that disqualifies you? (the dividend portion of your income, that's not salary). I'm guessing that's it

NPVAdvisor :

If that's the case, then you may want to revoke the S-corp status and simply have self employment income (which is not considered investment income)

NPVAdvisor :

here's an excellent article on Chron.com about the steps needed to revoke S-Corp status and return to LLC ... which would simply general self employment income, rather than investment (dividend, k-1) income

NPVAdvisor :
id="section-1" class="section">
Step 1

Vote to terminate the S corporation election. Call a meeting of all of the owners, known as members, of the LLC. Subchapter S of the Internal Revenue Code requires the consent of over 50 percent of the company's owners to terminate an election. Record the vote in the minutes of the meeting and file the minutes in the LLC's records book. Have the secretary draft a resolution empowering a managing member to carry out the decision to terminate.



Step 2

Prepare a statement of consent to terminate the election. Have the majority of owners who voted for the termination sign the consent form. The format of the consent form can mirror the consent statements that were included with the original S corporation election on IRS Form 2553, Election by a Small Business Corporation. Basically, the consent form should contain language that expresses the desire to terminate, the effective date of the termination, a list of the owners who consented, their Social Security numbers and their percentage ownership interest that proves a majority decision. The form must be signed by the owners, and their signatures must be notarized.



Step 3

Prepare a letter to the IRS, terminating the election. There is no official form to terminate an S corporation election. The letter should be titled' "Revocation of S Corporation Status" and include a statement that the company is terminating the election pursuant to IRC Section 1362(a). It should also include the company's Employer Identification Number and the effective date of the termination. The managing member who signs the company's federal income tax return should be the one who signs this letter.



Step 4

Send the termination letter and the statement of consent to the IRS. Send the documents to the same IRS service center that processed the original election. Refer to the letter the company received from the IRS, authorizing the election, when you filed Form 2553. This letter should be in your company's records book. Address the termination letter to the same service center.


 




NPVAdvisor :

So, after deducting salaries and other expenses on your Schedule C (which is the form you would use to file taxes as a single member LLC) you would be left with a self employment income well under the limit for the earned income credit. and NO dividend ("investment") income which I think is the problem here.

NPVAdvisor :

Let me know if I've understood your questions correctly, or if you have other questions

NPVAdvisor :

Lane

Ask Your Own Tax Question

Hi,

... just checking back in, as I never saw you come into the chat.

Again, as an LLC, you would still have the liability protection of a corporation, but not have that "investment" income that's keeping you from qualifying for the EIC.

Let me know of you have questions.

Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 4 years ago

there are no members i am the only one.


 


The that's what I would recommend.

Sometimes he S-corp can be better for raising capital from new shareholders ... or save a little bit on self employment taxes by having some of what comes to you be distribution of profits on a K-1, over and above a salary.

But in your case it's that small investment income limit that's hurting you I believe.

See this (and note the last line) from IRS:

Like Share Print
Preview of 2013 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

Here is a preview of the 2013 tax year income limits, maximum EITC amount and the EITC-related tax law changes.

Preview of 2013 Tax Year

Earned Income and adjusted gross income (AGI) must each be less than:
$46,227 ($51,567 married filing jointly) with three or more qualifying children

$43,038 ($48,378 married filing jointly) with two qualifying children
$37,870 ($43,210 married filing jointly) with one qualifying child
$14,340 ($19,680 married filing jointly) with no qualifying children

Tax Year 2013 maximum credit:
$6,044 with three or more qualifying children
$5,372 with two qualifying children
$3,250 with one qualifying child
$487 with no qualifying children

Investment income must be $3,300 or less for the year.


Another thought would be to pay yourself all in salary and take no (dividend from the k-1)

Ask Your Own Tax Question
Customer reply replied 4 years ago


but if i give my self a 1099 then it records double one from the co n another from myself to myself


No, you'll need to actually go through the steps above to terminate the S-corp election.

The you'll file as an LLC with only self employment income.

I'm guessing that's where you started ... as an LLC and the did the S-corp election.

Once you revoke the S-corp election, you'll only have that self employment income from the LLC and that's it

Ask Your Own Tax Question
Customer reply replied 4 years ago


oh ok so i must terminate the s-corp and then report on the 1140 with schedule c


 


You have it.

Again, for your purposes, I would think the LLC is better anyway.

LLC is kind of a hybrid (fastest growing entity in the country), that still protects your personal assets from creditors and lawsuits... but has the flexibility of a sole proprietorship.

I think folks go to the S-corp too quickly anyway.

But yes, at the income level you're at now, the LLC makes more sense because of the saving that come from the EIC.

AND... you can always elect S-corp at a future date.

Lane
Ask Your Own Tax Question
Customer reply replied 4 years ago


ok i got it thank you for the help. is there anything else i need to do here before terminating this session?



No, you already rated ... and thanks so much for that.

Let me know if I can help further.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane
Ask Your Own Tax Question
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,876
12,876 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane 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
I am preparing a form 8802 for an LLC that will be filing as
Good morning. I am preparing a form 8802 for an LLC that will be filing as a Partnership on Form 1065. For 2016 this entity was a Single Member LLC and two Partners were admitted October 1, 2017. … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,483 satisfied customers
A partner sold his interest in an LLC to the other partner.
A partner sold his interest in an LLC to the other partner. He still receives distributions, which are handled as payments to a retiring partner according to Internal Revenue Code §736(a). The questio… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
I am an owner of an LLC. I will take distributions through a
I am an owner of an LLC. I will take distributions through a schedule K1 pass through. I also receive W2 income from an employer and 1099 income. Will I be able to fully depreciate a qualifying truck … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
What does "Distributions Other Than Dividend Distributions"
what does "Distributions Other Than Dividend Distributions" mean on a corporate tax return? Was the amount listed actually giving to the shareholder? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
1099-R with distribution code 3. Can I get an earned income credit?
If someone receives a 1099-R with a distribution code 3, can they qualify for earned income credit? The person receives his pension because he became disabled.… read more
Bizhelp
Bizhelp
Certified Public Accountant (CPA)
Bachelor's Degree
638 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
3,483 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
Lane
Lane
JD, CFP, MBA, CRPS
12,876 satisfied customers
Married filing jointly. AGI $170k. we have an extension for
Married filing jointly. AGI $170k. we have an extension for our 1040 My employer has a retirement plan. Wife is self employed with $6700 Net Profit on Schedule C Line 12 1) Can she contribute $6500 to… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
We have been filing income taxes as married, filing jointly,
Hello My name is*****: What state are you in? It matters because laws vary by location. Customer: We have been filing income taxes as married, filing jointly, in California … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
A Form 1065 partnership return is being prepared for a
A Form 1065 partnership return is being prepared for a partnership whose General Partner is a single member LLC. In the Analysis of Net Income (Loss) section at the top of page 5, is the LLC's portion… read more
taxmanrog
taxmanrog
Master\u0027s Degree
699 satisfied customers
Company A transferred assets and liabilities to a newly
Company A transferred assets and liabilities to a newly formed Company B … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Same question on the taxation of interest and dividends (on
Same question on the taxation of interest and dividends (on mutual funds) earned inside a disclaimed portion trust ... disclaimer trust . The original owner of a trust passed and the spouse declined a… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 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
2,226 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
Lane
Lane
JD, CFP, MBA, CRPS
12,876 satisfied customers
Can franking credit on an Australian income tax return be
Can franking credit on an Australian income tax return be used on Form 1116 as tax paid on the franked distributions? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Since my adjusted gross income is over $100,000, I can't
Since my adjusted gross income is over $100,000, I can't take the rental loss that I have even though I was actively maintaining the property. Since I have a mortgage and property taxes on that rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Dependent Children. 1. Taxpayer's adjusted gross income is
Dependent Children.1. Taxpayer's adjusted gross income is over $ 800K so personal exemptions are phased out. 2. Taxpayer's children are between ages 12 - 17. 3. All three children have earned income o… 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