Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

I have a client who formed an S corp late in 2015 to save SE…

Customer Question
I have a client who...
I have a client who formed an S corp late in 2015 to save SE tax money. And then it turned out they made very little money. The incorporation date was 1 Dec 15. They were solo propretors before that. They have a Lyft income and other SE Income. They elected to be treated as an S corp. They have one month as Scorp, and no real benefit. Can I simply post them as zero income as S corp and put their small income in Sole Proprietorship for all of 2015 and save a separate corporate filing. Or is that unwise. They made very little money. But I suppose I can do schedule C for 11 months and s corp for one month.
Submitted: 2 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 2 minutes by:
2/13/2016
Tax Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,608
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified

Thank you for your question. Anything received after December 1 must go through the S Corp. It's a pain, I know -- but they have to do this. They should have made the corp effective January 1 but you can't turn back time and change that. I wish I had better news, but don't cut corners -- do it right.

Please let me know if you need anything additional. If not, please rate positive.

Ask Your Own Tax Question
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial & tax advice since 1986.

I am a different expert and have a different answer.

...

An S-Corp can voluntarily revoke it's S-Corp election.

...

Pursuant to §1.1362-2 of the Income Tax Regulations, an election made under §1362(a) of the Internal Revenue Code is terminated if the corporation revokes the election for any taxable year of the corporation for which the election is effective, including the first taxable year.

...

A revocation must be made with the consent of all shareholders holding more than one-half of the issued and outstanding stock of the corporation. In general, a revocation is prospective. However, a revocation made during the taxable year and before the 16th day of the third month of the taxable year is effective on the first day of the year and a revocation made after the 15th day of the third month of the taxable year is effective for the following taxable year.

...

You need to get busy and get this postmarked or preferably sent via certified mail tomorrow morning

...

Here's a sample letter: http://www.cpaatlaw.com/2013/07/sample-form-for-s-election-revocation.html

...

Again, See this:

...

Revocation - The election may be revoked if shareholders owning more than one-half of the corporation's stock (including nonvoting stock) consent to the revocation (§ 1362(d)(1)(A) & (B)).

...

A revocation made by the 15th day of the third month of the corporation's tax year is retroactive to the first day of the tax year of revocation (§ 1362(d)(1)(C)(i) and Reg. § 1.1362-2(b)(2)).

...

Let me know if you have questions.

...

Lane

..

Ask Your Own Tax Question
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

P.S.

...

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.

...

I sincerely ***** ***** has helped!

...

Please let me know if you have any questions at all.

...

If this HAS helped, I'd really appreciate a positive rating (using that rating request or the stars on your screen)

...

That's the only way I'll be credited for the work here.

...

Thank you!

Lane

.

Ask Your Own Tax Question
Tax Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago

If you want to use the S Corp in 2016, it is unwise to revoke the election for one month -- and that can also be problematic. This is just a temporary inconvenience.

Please let me know if you need anything additional.

Ask Your Own Tax Question
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

As it sound like you know here, the S-Corp may have been the wrong thing to do and it may be quite some time before it (if ever) becomes appropriate.

...

The LLC is the fastest growing entity type in the nation for a reason - the low cost, simplicity and flexibility of a sole proprietorship, but with the liability protection of a corporation.

...

Likely a better AND MUCH CHEAPER (in more ways than one) way to go.

...

With the S-Corp, only once profits get WELL above that required reasonable salary (and the other expenses, so PROFIT) is there any SS & Medicare tax savings at all.

...

Not only that, the S-Corp comes with much additional administrative overhead and risk (quarterly 941's, paying in both the shareholder employee and company match portion of SS & Medicare AT LEAST monthly, W-2''s, the additional risk that comes WITH those additional filing and pay-in requirements).

...

Filing the voluntary revocation letter before the 15th is not cutting corners, it's good business AND tax planning.

...

The assumption that you want to continue the S-Corp doesn't seem to line up with the information you've provided.

...

And even if you think that may be desirable some day, doing so prematurely may leave the client exactly where he/she had ended up here again next yearf.

...

In my 30+ years in practice I MUST tell you that TOO many times I see the S-Corp recommendation come from accountants who make their bread and butter DOING those payrolls ... unnecessary payrolls. (Not all of them, but far too many)

...

Regardless, to answer your question, yes, you can still do this. I completely disagree both with the substance AND the inference made above.

...

let me know how I can help.

...

Lane

...

Ask Your Own Tax Question
Tax Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago

There are benefits to having an S Corp -- and since you have the LLC you have the flexibility of the legal structure. If you revoke, you're back to schedule C. It can actually be beneficial -- and yes, there are administrative headaches, but sometimes it's better to have a clear set separate business tax return. Your question was simply to ask if the one month should be claimed on Schedule C or not -- and that was answered. I'm sorry we veered off topic from your original question. Please let me know if I can be of any additional assistance.

Ask Your Own Tax Question
Customer reply replied 2 years ago
Dear Megan, Thank you for your input. Yes, you did answer my question. The CLIENT wanted the S Corp and badly overestimated his 2015 income. Now, I plan on doing his 2015 corporate and personal return. We are talking around a thousand dollars in net corporate income in the last month and the year. I will file the ll20S. He and his wife are hiring a bookkeeper/payroll person to handle the new year. I presume no one in IRS is likely to care if I pay 1000 in dividends and no wages in 2015. This is just the last month we are talking about. The Client EXPECTS to make enough money in 2016 to make his S corp status worthwhile. I will not be doing the payroll and bookkeeping, and am only the tax guy for them. That being said, I want to make sure it is done right. It is a man and wife corp and they are the employees. Mainly sales related stuff. How rarely can they do payroll? Can they do it once per quarter. Or should I have them do it once per month. I won't be doing bookkeeping and payroll, but I want to advise them correctly in any event. I will simply do the 1040 with schedule C and 1120S for 2015 (last month) and next year the 1120s and `1040 with no schedule C. Is there anything else I should be alert to?
Tax Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago

Thank you for your follow up. They can reclassify draws as wages once per year, but I don't recommend it unless they are fairly liquid and able to pay tax -- you want to sort of "train" them to budget for taxes. Some clients are good, others are not good. If they are going to handle it themselves, I would almost tell them to do it monthly -- but that's just me being conservative --- there's no rule as long as they are being paid a fair market salary.

Sorry for any confusion -- the S Corp can be good, or bad, depending on the client -- there's a lot more to consider than just the tax cost, though.

Please let me know if you need anything additional. If not, please rate positive.

Ask Your Own Tax Question
Customer reply replied 2 years ago
I am not worried about them spending all their money and not allocating for taxes. They are very conservative financially. If they make good money, which they expect to do, and which I thnk they will, it will not be a problem. They did not follow up with their bookkeeper payroll person, and so there was no wage formally done in December. They just took it all as they were used to as sole proprietors. They also have their own small home and Social Security so they are not hurting badly. They all did Lyfft tlas year, and made money doing that, but when you take out 57.5 cents per mile for 50,000 miles, you wind up with little taxable income and no need for corporate shielding of SE taxes. This year they are doing another business. Expect a 100kplus income. It is real they will make that or more, so Corp status does make sense. My question is allocating taxes between fair wage and dividend for 2015 and 2016. It is not exactly my problem, as I am not doing their payroll, but still it has a bearing on their taxes. Do I instruct their payroll person to start doing the split in 2015 or if it is so small is it even a problem?.Can I just pay it as dividend? It would not surprise me if we legiitiemately could come up with a loss for the corp for that month. Any dividend will be nominal. Now, for 2016, do I have to do a monthly payroll. Or can I let them do draw and classify at the end of each quarter wages and have the bookkeeper do quarterly filings. It is a husband and wife and I can tell them they have to leave tax money in the account, and I am pretty sure they are savvy enough to do so. If not, they could always borrow from Mom who bought them the house. I am not an experienced payroll person, and I want to make sure whoever they hire does good job for them, and does filing on time. But I also want to follow the law and minimize their expense. You are definitely getting a positive 5 star rarting. Please advise me on the easiest way to do this, and any pros and cons. I will then tell them what to advise their payroll person on and how often they must pay themselves a wage and when to file their quarterlies.
Tax Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago

You don't have to do a monthly payroll -- just make sure that they are paying themselves a "fair" salary. This is the crux of the S Corporation.

I would tell them to do it monthly, just to make it easy on the bookkeeper.

Please let me know if you need anything additional. If not, please rate positive.

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Megan C Your Own Question
Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,608
16,608 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Megan C 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

1,338 satisfied customers

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

Richard

Richard

Tax Attorney

4,512 satisfied customers

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

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

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

Megan C

Megan C

Certified Public Accountant (CPA)

16,608 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.

< Previous | Next >

Related Tax Questions
If a person owns a corporation or an LLC both from just one
If a person owns a corporation or an LLC both from just one owner and after a certain time of operation decides to sell it, the new owner can continue using the same name and EIN under the same condit… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
OK. Another odd situation for you sir. Client is a single
OK. Another odd situation for you sir. Client is a single mom with two kids. She incorporated in 2011 in August and never filed a corp tax return and intended to do but never did an S Corp election. S… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Lane, If you are a general partner in an LLC Partnership
Hi Lane,If you are a general partner in an LLC Partnership with your wife, can the partnership contribute to a SEP only based on the self employment income? What is the maximum $ amount and % of incom… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,894 satisfied customers
Preparing 2015 tax return. There is an LLC that was formed
Hi Barbara,Preparing 2015 tax return. There is an LLC that was formed for a consulting business. The prior tax preparer was filing the profit on a Schedule C. However, the company applied for W Corp e… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,665 satisfied customers
A company was formed 2010 and they are just now getting
A company was formed 2010 and they are just now getting their tax returns together for filing. It is a single member LLC. I don't know if there is an exception since they didn't file any returns timel… read more
Mark D
Mark D
Enrolled Agent
Master's Degree
1,338 satisfied customers
This question is, JD. It is related to a question I asked a
This question is for Lane, JD. It is related to a question I asked a couple months ago. Some months ago I asked a question about a new forming corporation taking in earlier businesses from a couple an… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,894 satisfied customers
If i accidentally funded my sep from when i was a sole
if i accidentally funded my sep from when i was a sole proprietor and did not set up a new sep as a scorp is it still deductible. It was funded prior to the extension date of 9/15 and was funded based… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,894 satisfied customers
I own and am the only employee of an s-corp. Is there a way
I own and am the only employee of an s-corp. Is there a way that would benefit my bot***** *****ne more financially if I set something up through the company or am I ok just doing something tax-free o… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,894 satisfied customers
I have a small company and have been making about 135 k per
I have a small company and have been making about 135 k per year profit. I would like to become an S Corporation. I also have a couple other companies run jointly by myself and my wife, which are new.… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,894 satisfied customers
I own a single member LLC located in WV. I had a large tax
I own a single member LLC located in WV. I had a large tax liability this year and would like to designate my business as a S-Corporation for tax purposes for 2015. From what I understand, I do not ne… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If I incorporated on January 27th, 2015. When is the deadline
If I incorporated on January 27th, 2015. When is the deadline to make a federal S-Corp election for the calendar year 2015?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
, I started a small business in May 2012 and incorporated
Hi, I started a small business in May 2012 and incorporated then as an S-corporation. It seemed like the best tax structure. The problem is that the business has yet to make money and it may be anothe… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am a software engineer recently converting from a W2 employee.
I am a software engineer recently converting from a W2 employee. I found a contract in which I started working in early August, but I did not official incorporate until August 28th. My client is okay … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Just changed from a Sole Proprietorship to an LLC (California).
Just changed from a Sole Proprietorship to an LLC (California). I am thinking about taking the s-corp election - by filing IRS Form 8832. I want to know about tax consequences if I do this. Since I ju… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a C corp formed in 04/2011 and did not start doing business
I have a C corp formed in 04/2011 and did not start doing business until 9/2011. I want to switch it to a S corp effective this tax year. I have not made any money yet but i have many business expense… read more
Charles Greiner
Charles Greiner
Owner
Bachelor's Degree
2,436 satisfied customers
401K question My husband was 100% share-holder of C-Corp.
401K question: My husband was 100% share-holder of C-Corp. As of this year, he terminated the C-Corp. and operating business under the same business name but as sole proprietorship. The C-Corp. have 4… read more
Bill
Bill
Master's Degree
2,278 satisfied customers
(2) independent financial advisors share an office and clerical
(2) independent financial advisors share an office and clerical help. They formed an LLC and funded it 50/50 to cover these expenses only. Each filed their separate Sched(s) C and the negative income … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Ive been in business as a sole proprietor for about 1.5 years
I've been in business as a sole proprietor for about 1.5 years now. I want to incorporate but am wondering if it is worth it for the tax breaks this year? I've only earned $40000.00 self employment in… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 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