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I have a sole proprietor LLC and mistakenly have paid myself

a w2 for the past...
I have a sole proprietor LLC and mistakenly have paid myself a w2 for the past 2 years. I have no other employees and probably should have been doing things differently taxes wise..Is there a way to amend and rectify this?
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Answered in 24 minutes by:
7/15/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,621
Experience: Taxes, Immigration, Labor Relations
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LEV : Hi and welcome to Just Answer! You definitely may amend your part has returns and change the way of reporting. However most likely - there would not be any additional tax liability because your self-employment income instead of employment taxes would be subject of self-employment taxes that are essentially the same. So instead of amending past tax return I suggest to close your employment tax account by filing a final employment tax return and issue a final W2 form to yourself. Starting that day - you would not. Pay wages to yourself and will report all your income as self-employment income.
Customer:

when you say close your employment tax account, what does that entail? The state is saying I need to pay past Unemployment Insurance even though I'm the only employee because of the way taxes were filed in past years.

LEV :

If you paid wages - you filed employment tax returns for these two years - federal forms 940 and 941 - if you want to eliminate wages - you need to amend these tax returns. Filing a final tax return is indicates on the form by checking the box final - and the IRS woudl close your employment tax account.

LEV :

See for reference - http://www.irs.gov/pub/irs-pdf/f940.pdf
Also - you need to check "Amend" box if you are making changes for past filing.

Customer:

ok. can I still keep my EIN after I close my employment tax account?

LEV :

If you are a solo proprietor and do not have employees - you do not need EIN.
But yes - you will keep it as long as you have the LLC.

LEV :

You will also need to close your employment tax accounts with the state.

Customer:

If I amend the past returns how to I resolve the issue of the monies paid on the w2s?

LEV :

You woudl need to issue corrected W2 form with zero wages and send them to the IRS with amended 940 employment tax returns.
Then - you need to amend your individual tax return form 1040 - and report all your self-employment income on schedule C - use form 1040X to amend.
In this case - wages would be zero.

Customer:

Thanks for all your help

LEV :

Sorry for your situation. I just thought that amending everything would be a lot of paperwork - and some additional overhead.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,621
Experience: Taxes, Immigration, Labor Relations
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