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Hello - I own a new business that is a single member limited

Hello - I own...
Hello -
I own a new business that is a single member limited liability company. I am the sole member of this company and have a question about tax filing. I filed my taxes as $0 collected for 2011 on form 1120 my first year as the doors did not open for business but the FID was active for a year.

The IRS sent me a letter telling me that I need to file form 8832 entity classification and that I have to either file similar to a sole proprietor on a 1040 & schedules or file 8832 to be taxed as a corporation on forms 1120. The IRS letter says "the election must be filed no later than 75 days after the date for which the election was intended to be effective" I am not quite sure what that means.

My question is what are the benefits to filing one way or the other? Is it too late to file the 8832 since I have been open for almost 2 years now?
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11/20/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello and welcome. My name is XXXXX XXXXX I would be happy to assist you today

Megan C :

It is not too late to file form 8832 - you can do so for any year you wish to change how you are taxed.

Megan C :

I would say, though if you are in business on your own, it's easier to file as a sole proprietor than it is to file as a corporation

Customer:

Hi Megan

Megan C :

also with a corporation you are taxed on the profit, then taxed again when you draw funds from the business

Megan C :

This is known as "double taxation"

Customer:

Ok. For my first year in business since 0 was collected I tried it on my own. 2013 was my first year for profit and I am an auto dealer so I am deff hiring an accountant.

Megan C :

I see ... you will want some sort of business organization at least for liability protection

Megan C :

I would at least become an LLC

Customer:

Exactally

Customer:

I did file as an LLC in DE this year

Customer:

I am just wondering going forward what would be better to file as a 1040 or 1120

Megan C :

Okay ... that's good. You can pay tax on your own return or become taxed as a corporation

Megan C :

When you are a corporation, you're taxed on your profit when you earn the profit, and then again when you take the profit out of the business\

Customer:

I see. So lets says I take money out of the business as a corporation to pay my mortgage, can I be taxed on that?

Megan C :

Yes, that's a dividend, It would be fully taxable to you

Megan C :

But if you are not a corporation, you are not taxed - you're only taxed when you make money

Customer:

Hmmm I see. So being a small company a new it sounds the 1040 filing may be easier to start.

Customer:

and new i should say

Megan C :

If you are staying small, yes. If you take on more owners then you would need to look at being a partnership vs a corporation

Megan C :

You might even looking to be an LLC taxed as an S Corp. With the S Corp, you are taxed only on your profits and your self employment taxes are minimized as you pay yourself a salary from the business

Customer:

Oh Ok. One last question. If I elect to stay as a 1040 corp I wont have the same protections against lawsuits or losing my personal assets. This was one reason why I chose the single llc.

Megan C :

You still have liability protection. Paying tax on your 1040 is just how you are taxed. It does not impact your liability protection

Megan C :

So, a single member LLC is fully protected even though tax is paid on the 1040

Customer:

Good info!

Megan C :

Do you have any more questions?

Customer:

Yea. Sorry I will give you a tip for all this. Is it tough to change corp types if I go to an S corp

Megan C :

All you have to do to be taxed like an s corp is file form 8832 and then form 2553 with the IRS. You don't have to change anything else with your LLC

Megan C :

it's a simple process - if you hire an accountant they could do it in less than 30 minutes

Customer:

Ok sounds good. Helps me on the right path. Thanks for all your help!

Megan C :

Oh it's no problem. And come back and see me if you have further questions

Customer:

I think you may be hearing from me. Thanks!

Megan C :

you're welcome

Customer:

I will leave an excellent rating. Good bye

Megan C :

If you would, before you leave chat today, rate me positive so that I may receive credi t

Megan C :

okay great...thanks so much

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Customer reply replied 3 years ago

Hello again-


I have a few deduction questions for you as I am compiling my 2013 business taxes. I will gladly pay for you answers.


 


Am I able to deduct items purchased at the end of 2012 but used in 2013 in my 2013 taxes? For example I purchased a book of title reassignments in 12/12. I did not use the reassignments until 2013 nor did I write them off in 2012.


 


Next.: I purchased a truck and trailer for my business which adds up to a good amount of a deduction. From what I understand I can deduct these a little over the next 5 years instead of using the deduction all in the same year as purchased? Is this true and how would I record that?


 


Thanks!


 


 

Thank you for your follow up questions.

1) if you are cash basis taxpayer, you will deduct the expense in the year you pay it - in this case 2012. You would have to amend 2012 to take the deduction.

2) Yes, you can depreciate your cost over 5 years. You simply place it in the automotive expense line on your tax return and fill out form 4562.

Please let me know if you need anything additional. If not, please rate positive so that I may receive credit for assisting you today.
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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