1120 Tax with non-deducted prior year Interest and Depr, and a Minor Tax Filing

[Boma Osime]

I have two questions....

I have a minor that wants to file his taxes. He has a single member LLC and made some Income last year that made him file his taxes. I honestly do not know yet how his taxes were filed until I see it to review it, but he says he paid about $900 in taxes to the IRS. He made about $6,000 in income. I know that minors are not required to file taxes and should he have paid that much in taxes when his standard deduction was higher than the income made. Is he required to file his taxes this year because of the Schedule C Income he made in 2020?

Secondly, I have a 1120 corporation tax I am working on, The previous 2 tax years that were filed were not done properly. It is a dental business with one owner but incorporated. The owner obtained a loan and purchased some equipment in the year it started in 2018. No depreciation was deducted in both prior years. I adjusted for depreciation in this 2020 return for the previous years via the retained earnings. Is this allowed? Also, interest paid on loan was not captured in 2019 I included this interest as part of 2020, will this allowed be allowed?

[spanel]

I have two questions....

I have a minor that wants to file his taxes. He has a single member LLC and made some Income last year that made him file his taxes. I honestly do not know yet how his taxes were filed until I see it to review it, but he says he paid about $900 in taxes to the IRS. He made about $6,000 in income. I know that minors are not required to file taxes and should he have paid that much in taxes when his standard deduction was higher than the income made. Is he required to file his taxes this year because of the Schedule C Income he made in 2020?

Secondly, I have a 1120 corporation tax I am working on, The previous 2 tax years that were filed were not done properly. It is a dental business with one owner but incorporated. The owner obtained a loan and purchased some equipment in the year it started in 2018. No depreciation was deducted in both prior years. I adjusted for depreciation in this 2020 return for the previous years via the retained earnings. Is this allowed? Also, interest paid on loan was not captured in 2019 I included this interest as part of 2020, will this allowed be allowed?

Age is generally irrelevant as far as filing requirements... $400 or more in self employment income you are required to file.

You can adjust the "books" via retained earnings, not the tax returns. I would amend the open years to fix them. You cannot deduct a 2019 expense on a 2020 return.

Chris

[BOB W]

[QUOTE=Boma Osime;n306270]I have two questions....

I have a minor that wants to file his taxes. He has a single member LLC and made some Income last year that made him file his taxes. I honestly do not know yet how his taxes were filed until I see it to review it, but he says he paid about $900 in taxes to the IRS. He made about $6,000 in income. I know that minors are not required to file taxes and should he have paid that much in taxes when his standard deduction was higher than the income made. Is he required to file his taxes this year because of the Schedule C Income he made in 2020?

His tax is SS. 6,000 X 15.3% = $918. no deductions.......

[Boma Osime]

Thank you Chris for responding. After I adjust the books I suppose it reflects in the book to tax reconciliation because that is where I actually did the adjustment. Will that be correct to reflect the adjustment at the book to tax reconciliation in Schedule M1?

[Boma Osime]

Thank you Bob for your response. My question as per your response is, Since the income is a pass through doesn't the standard deduction swallow up the tax payable. Does he still pay the $918?

[Lion]

Boma, please look at a tax return. See how the numbers flow. The standard deduction reduces adjusted gross income before calculating income tax. But then you add other taxes, such as self-employment tax. No. The $918 self-employment tax is NOT reduced by the standard deduction. And, what is the pass-through income you're bringing up now? Yes. Minors pay taxes. IRS's Pub 17 will help you with a lot of your questions. It will explain filing requirements. No. You cannot deduct interest paid during 2019 on a 2020 corporation return. Or, any return, for that matter. If you are going to prepare business returns, you'll want to take a good bookkeeping course. In fact, use your off-season wisely by taking courses to help you prepare the types of tax returns for your clientele.

[ATSMAN]

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If you are going to prepare business returns, you'll want to take a good bookkeeping course. In fact, use your off-season wisely by taking courses to help you prepare the types of tax returns for your clientele.

Boma listen to Lion, that is experience talking. When I first started in this business I made some stupid mistakes because I did not want to take the time to learn business tax returns, rather follow examples from other accountants. Fortunately the mistakes could be fixed with amendments and egg on my face!

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[Boma Osime]

Thank you Lion an Atsman. I am not in anyway disagreeing with you all, I understand clearly. It is the treatment in taxes that I am wanting to understand. We have what is called financial statement re-instatement in accounting where we correct previously issued financial statement by making adjustments in retained earnings to bring the books to what it should have been, in this case 2019. I do not know and I am being frank how this translates in taxes. Maybe my questions were not very clear. After the books are corrected how is this treated in tax. I hope I am clearer. Is it to file an amendment in 2019 or to bring in the corrected balances as at 2020 in the current tax return. Please I am very open to learning so I am actually listening to all that you say and also check out the references that are made.

Thanks again - Boma

[BOB W]

Thank you Bob for your response. My question as per your response is, Since the income is a pass through doesn't the standard deduction swallow up the tax payable. Does he still pay the $918?

The Self employment tax is based on the profits on net income on schedule C. Schedule C profits flows to form SE. SE tax flows to Schedule 2 line 4.Then to 1040 page two line 23. SOooo this tax has nothing to to with income reported on page one of the 1040. Page one shows income and adjustments to income. From there itemized or standard deduction is applied to develop taxable income. If zero income tax is due it does not effect other type taxes to be added on page 2, like your SE taxes. Bottom line, Zero income taxes, but $918 Self employment tax will be due. Self employment tax is the way self employed pay into Social Security.

[Lion]

If the entity is cash basis, and you discover a 2019 transaction after the return is filed, you file a 2019 amendment. Again, you'll want to take a class. It's very easy this year with everything on demand. You can spend 100 minutes with an instructor, text, and examples from the comfort of your office with your tax return open. For depreciation, read about the requirements to use Form 3115. TTB has a variety of resources, including courses.