Old C-corp filings and profits to sole shareholder

[kpangelinan]

I'm preparing 2007 and 2008 C-corp returns and the company is ending with a profit for both years. All of the profits for both years were taken by the owner as draws throughout the year to live on and none of that money was reported through payroll or 1099 income to the IRS and social security.

My question is, do we file W2's, W3's, 941's, 940's as if the client was supposed to do them in each of the years?

Or do we not give the client income and just have the corporation pay all the tax because it's after the fact? Doing it this way doesn't give the client the opportunity to show and pay payroll taxes for his/her social security.

Thanks for any help out there.

[ChEAr$]

First think of all the work necessary to engender W2's, 941's, etc, etc, plus state unemployment tax problems for being late, and form 940 tax at the highest possible rate
since there's no credit for SUTA taxes available......

At this point, what's not done is done, and over with. Instruct client to start now to do it
right, and go and sin no more.

Oh, and pray IRS doesn't audit.

[Maribeth]

I'm preparing 2007 and 2008 C-corp returns and the company is ending with a profit for both years. All of the profits for both years were taken by the owner as draws throughout the year to live on and none of that money was reported through payroll or 1099 income to the IRS and social security.

My question is, do we file W2's, W3's, 941's, 940's as if the client was supposed to do them in each of the years?

Or do we not give the client income and just have the corporation pay all the tax because it's after the fact? Doing it this way doesn't give the client the opportunity to show and pay payroll taxes for his/her social security.

Thanks for any help out there.

It appears to me that the corporation issued dividends to its only shareholder for 2007 and 2008 and that the shareholder will be paying tax on his qualified dividends.

And what Chears said: what's done is done. Advise your client what he needs to do in the future, tax him on the distributions and move on.

However, you could also have a s/h loan with appropriate interest accrued and loan documents in the client's file that support the loan. You could, then, deem a monthly payment through salary in 2010, in addition to his regular salary, in order to get the loan paid down.

Maribeth

[JohnH]

The combined tax rate on the constructive dividends and the corp tax rate will probably be considerably less than the total tax rate on deductible salary & wages. So he will be ahead slightly insofar as cash is concerned but he won't have any quarters coverage under Social Secuity. Hopefully he's young enough that the missing years won't affect his retirement benefits too much. Just tell him not to become disabled and he will be fine going forward.

[kpangelinan]

Thanks everyone!

Thanks everyone!!!