New client coming in tomorrow started LlC did S corp election as of 01/01/2017 took no salary.Is there a way to to take back the election and treat the LLC as a disregarded entity for tax purpose?
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Quick fix
I assume the election was granted for 01/01/2016 and not 01/01/2017, otherwise there is still time to rectify the situation.
I have had this issue before and have given the clients two options. 1) Report any distributions as shareholder distributions and no officer compensatio and then warn them of the consequences; IRS can reclassify any distribution as wages, failure to file/deposit 941s, W2s, etc (nightmare scenario) or,
2) Report the "reasonable" compensation as income on the shareholder's return and issue a 1099 to the shareholder for the compensation. It's ugly and improper and the State/Feds won't receive their SUTA/FUTA but it gets the job done because the IRS collects the equivalent in payroll taxes by assessing the SE tax on the shareholder's return.
I wouldn't get cute on the 1040 (Schedule C) by offsetting the income with expenses, this might be asking for attention from IRS.
Now, whether to include the compensation on line 7 of the 1120S is the big question. If you do, will it raise suspicion from IRS? Will the IRS question why payroll reports/W2s were not filed? I have reported the 1099 income to the shareholder on line 7 and haven't had any issues in the past, but that was then and this is now so you make the call.Circular 230 Disclosure:
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S corp
Yes 01/01/2016 sorry. My thoughts were as second option than start payroll for this year. Try to close corp as of 12/31/2017. Client does not need all the extra work income not large enough.Comment
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I know what you mean
Yup, if you recognize the client can't "keep up appearances" and treat this S Corp properly, this is a wise move.Originally posted by MDEA View PostCircular 230 Disclosure:
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