Earned income from s corp

[oceanlovin'ea]

I have a (new) client who I took on because his last preparer was not doing him right. Now I feel like I am treating him the same way. But he is difficult to deal with.

Anyway, he had an s corp that he dissolved last March. He set up another LLC, which he filed to be taxed as a s corp. He had a little income from the first one and a little more from the second. He did no payroll. He didn't have many receipts. I will only use the receipts that he has provided for me to use. So I am sure that his income is probably less, but we will go with what I have. $3400 for the first and 7300 for the second. See, he didn't make much money at all and has 3 kids and wife doesn't work.

With all the income on k-1 from s corp, he doesn't even qualify for EIC. It is just a zero tax return. Is this correct or am I missing something?

Thanks for your help.

Linda

[dsi]

It doesn't seem like you are missing anything. With such little profit, I for one would not be concerned about payroll at this point.

[Gretel]

As stated, no earned income. What I would want to know is what he lived on. It's hardly possible to support five people from $10,000. But that is the only thing in regards to missing something I would be concerned about.

[taxxcpa]

Cash under the table

He may only report the money he deposits and live off the unreported cash he collects.

[JohnH]

Great observation. What type of business is he in?

[oceanlovin'ea]

He installs cabinets. I think last year he probably did whatever he could do.

I think they lived off credit cards a lot, actually.

Okay. Thanks for the confirmation that I was doing everything right.

Linda

[oceanlovin'ea]

outcome

Well, as it turns out he gets a small refund. He had one W-2 from a job for 1351.00 with a little withholding. They each drew unemployment compensation which she had some withholding too.
So they got some EIC and had paid in some withholding.

Guess he didn't do so bad after all.

Linda

[JohnH]

That certainly would be a business that could generate considerable under the table income. But you've done your due diligence & made reasonable inquiries, so if there's more to the story it's pretty much his responsibilty.