New LLC Client - Need help

[Mo Sheets]

I have a new LLC client (sole member) who has used an out-of-state preparer in the past. When I reviewed his 2008 records, the prior preparer issued a W-2 to my client for "wages". Last year, my client supposedly had wages of $ xx,xxx but a loss to the business of $ -x,xxx. Obviously, he ended up paying in more for Social Security/FICA than he would have if he had only paid on the actual profit of the business (would have had a small profit if wages weren't in the picture....he has no employees). Plus, he would have been able to deduct on line 27 one-half of self employment tax.

Any help on the "order" of corrections...i.e. 1) Correcting 941's first, 2) correcting W-2 next to show zero, 3) amending tax return, etc. I wasn't sure if one had to be done before completing the next or if I can do all simultaneously.

Thanks for any help you can give!

[Bees Knees]

I wouldn’t do anything other than to prepare the return correctly for the current year that he wants to pay me to prepare. If he wants prior years corrected, tell him to go back to the idiot who did it that way last year, and make him correct it for free.

It is incompetent tax preparers like that who cause government to regulate the rest of us who pay attention to the rules.

[Lion]

S Election?

Is it possible that LLC elected to be taxed as an S-Corporation? Was her business on a Schedule C? I agree to do current year correctly. Then, discuss with her what can be done about prior years and the tax benefits (or tax hits). Depending on your time and how much you could charge and how long you expect to keep her, you might recommend she return to her prior preparer for amendments or offer to prepare them yourself. Client might choose to make no changes in prior years.

[Mo Sheets]

Other Preparer Unable

I have spoken to the former preparer. He said he should have never taken on the work...blamed it on a staff person he ended up letting go. I am now the "winner" by default and must correct the 2008 return and prior years. This is a real mess from the get-go. Half of the reports were not filed...client getting nasty-grams from the state.

He has asked me to help him get this cleared up. I'm just not sure whether I need to amend the 941's and the W-2 PRIOR to filing the amended 1040 or if I can do all simultaneously.

Yes, I agree the former preparer SHOULD be the one to correct the errors. He has already told my client that he will refund his money since things were not done correctly. When I asked the former preparer why he did a W-2 for client, he said "because the prior preparer did it that way."

The LLC from the get-go was listed as a sole-member LLC...no S corp involvement.

Thanks again for any help anyone can offer as to the correct order of doing things.

[Bees Knees]

I have spoken to the former preparer. He said he should have never taken on the work...blamed it on a staff person he ended up letting go. I am now the "winner" by default and must correct the 2008 return and prior years.

I still do not understand why you must do anything. You didn't create the mess.

As to the order of doing things, do it all at once, and charge by the hour.

[ChEAr$]

All in one fell swoop

I have spoken to the former preparer. He said he should have never taken on the work...blamed it on a staff person he ended up letting go. I am now the "winner" by default and must correct the 2008 return and prior years. This is a real mess from the get-go. Half of the reports were not filed...client getting nasty-grams from the state.

He has asked me to help him get this cleared up. I'm just not sure whether I need to amend the 941's and the W-2 PRIOR to filing the amended 1040 or if I can do all simultaneously.

Yes, I agree the former preparer SHOULD be the one to correct the errors. He has already told my client that he will refund his money since things were not done correctly. When I asked the former preparer why he did a W-2 for client, he said "because the prior preparer did it that way."

The LLC from the get-go was listed as a sole-member LLC...no S corp involvement.

Thanks again for any help anyone can offer as to the correct order of doing things.

Strike while the iron is hot with this new client. No need for ordering filings, like Nike,
just do it (all at once).

[Mo Sheets]

Thanks Everyone!

New client is a good guy. Just chose the wrong person to do his bookeeping/taxwork. He wants to get everything straightened out and his former preparer told him he just doesn't have the time (Geez.....would have been nice to tell him that upfront before he began the work)

I will go ahead and file everything simultaneously. This is the first time I've had one like this....everything in a jumble......normally, it's just one thing here or there that needs to be fixed.

Thanks again to everyone for their input!

Mo

[JG EA]

I have a question before you begin correcting. Will you be able to get the SS,Med,Futa, Suta back? Will your client be able to get back the SE tax?

When companies are forced to begin paying wages on subs the employees can not get back their SE taxes can they? I am not sure. But there was just an article in NATP where a lady was "double taxed". Enron had to pay employee taxes and she had paid SE taxes. Enron asked for her withholding from her (and she paid it - too bad) and she couldn't get back her SE.

So, before you begin maybe make sure it will all work out well for the client. I'm wondering if it might be better to leave it alone. Again I'm not sure about this - just an idea.

[ChEAr$]

I have a question before you begin correcting. Will you be able to get the SS,Med,Futa, Suta back? Will your client be able to get back the SE tax?

When companies are forced to begin paying wages on subs the employees can not get back their SE taxes can they? I am not sure. But there was just an article in NATP where a lady was "double taxed". Enron had to pay employee taxes and she had paid SE taxes. Enron asked for her withholding from her (and she paid it - too bad) and she couldn't get back her SE.

So, before you begin maybe make sure it will all work out well for the client. I'm wondering if it might be better to leave it alone. Again I'm not sure about this - just an idea.

Getting a refund of those erroneously paid FICA taxes may not be possible, but with resorting to the practitioner hotline, and sufficient explanation of what the previous preparer did and did not do, that total may be transferred to owner's personal 1040 account. Been there; done that.

[Mo Sheets]

That's my hope....

I have already filed for the SUTA portion. I was waiting to make sure it was refunded before sending the correction for FUTA. Based upon what my husband indicated (unemployment audit examiner for the state), SUTA should refund for the owner's portion...no employees for at least the last 3 years.

I will call the IRS and verify how this will work for FICA. My hope is they can transfer over the portion that should have been paid based upon the 1040/Schedule C and refund the balance.

As always, I'm grateful for the help!