scorp problems

[WebProgrammer]

OK I'm going to lay out my scenario:

1. I have been a sole proprietor for around 4 years of a web development shop. I do web development on the side and make around 10-20k per year on it.

2. Last year I read about liability and everyone was saying, "S CORP" so in Sept. of 2005 I established an s corp to begin on 1/1/2006.

I received my Tax ID after filling out the proper forms.

Because of a misunderstanding, I have not done anyting about taxes up til today. I'm looking for advice on how to proceed. This year I have made about $6000 before deductions.

I'd rather not pay a CPA to work on my stuff since I am the type of person that would rather scour the web learning from others and eventually gain the knowledge on my own.

So the Questions I have are:

1. What 'next steps' would you take to get my tax status back up to par.
2. When I go to pay myself a salary, how do I determine what I should make. Since this is ust a part time business, it's hard for me to decide what a salary should be.

I appreciate in advance any help you guys/gals can give me,

WebProgrammer

[Bird Legs]

S Corp. problem

The very next thing you should do is what you said you do NOT want to do.
You need someone that knows what they are doing to take care of this for you.
Whether it be a CPA, EA, or whatever.
You are treading on thin ice right now.

[natiro]

S-Corp

If I came to you and asked you to use your expertise to develop a web site for me and I told you I was the type that didn't want to pay anyone for that service, would you do it without compensation? I doubt it.

You need to see a professional and you should be willing to pay for their services. You do not necessarily need to see a CPA. . .there are many other qualified professionals who can help you with planning and payroll.

Good luck.

[BOB W]

Actually.....

.... he is beyond "going to be" in trouble. Even though he stated his activity would not start until 1/1/06, a 2005 corporate return should of been filed by 3/15/06.

Don't walk to an accountant> RUN

[Armando Beaujolais]

What advice would you give an accountant who wanted to do his own web development?

"I'm just wondering how to deal with those 'No File Found' error messages and problems with slow downloads, no big deal, I'm willing to learn. I just want to do it myself instead of paying somebody."

Please. Stop being foolish. Hire somebody. You're already at the "Clean Up the Mess" stage. If you keep trying to do this yourself, you'll quickly be at the "Tax Problems Wrecked a Good Business" stage.

[WebProgrammer]

Wow, I guess I completely mistaken what a user help forum is all about.

"I'm just wondering how to deal with those 'No File Found' error messages and problems with slow downloads, no big deal, I'm willing to learn. I just want to do it myself instead of paying somebody."

I've helped many people on web design/development boards do things just like this. If you are not willing to help people, I'm confused on why you would be on a public board?

I guess it is true what they say about Accountants...

I'll go elsewhere. Thanks again for your help.

Kevin

[Bees Knees]

Did you contribute anything to this S corporation in exchange for stock?

Did you open up a new business checking accounting using the S corporation tax ID number?

Did you deposit any income from your business into the business checking account that uses the S corporation’s tax ID number?

If you can answer no to all of the above, then you did not operate an S corporation last year, and you can simply continue to file Schedule C as a sole proprietor.

The correct way to have handled the limited liability issue would have been to file papers with your state to become an LLC, rather than an S corporation. If you are a do it yourself type of guy, the LLC would be the ideal business choice for you, as the tax return would simply continue to be filed the way you have always done it. It appears your only interest is in the limited liability issue. You say nothing about trying to save FICA.

The S corporation (or C corporation) will only be a headache for you, as you will have to pay yourself a wage, withhold taxes, and file payroll tax returns in addition to a separate business tax return. For your level of income, there is no reason in the world to have to go through all that additional paperwork, when an LLC will produce the same results for you at one tenth the hassle.

If you do insist on continuing the S corporation route, and do not want to pay a CPA, then spend $65 on TheTaxBook. It has an entire section on how to handle S corporation tax returns along with a comprehensive example of how to fill out the forms, plus another section on how to do payroll. Just as it takes time to learn how to develop a web site, it takes time to figure out how to fill out tax returns.

[BOB W]

As you can see....

..... you are not a USER of The Tax Book, so that should of been your first clue. A user, yes, but not of this reference book.

Besides, even if someone wanted to spend their time getting you up to speed, it would take hours of typing to solve all of your current and future problems. That is why many, including me, wouldn't even start.

[WebProgrammer]

Did you contribute anything to this S corporation in exchange for stock?

Did you open up a new business checking accounting using the S corporation tax ID number?

Did you deposit any income from your business into the business checking account that uses the S corporation’s tax ID number?

If you can answer no to all of the above, then you did not operate an S corporation last year, and you can simply continue to file Schedule C as a sole proprietor.

The correct way to have handled the limited liability issue would have been to file papers with your state to become an LLC, rather than an S corporation. If you are a do it yourself type of guy, the LLC would be the ideal business choice for you, as the tax return would simply continue to be filed the way you have always done it. It appears your only interest is in the limited liability issue. You say nothing about trying to save FICA.

The S corporation (or C corporation) will only be a headache for you, as you will have to pay yourself a wage, withhold taxes, and file payroll tax returns in addition to a separate business tax return. For your level of income, there is no reason in the world to have to go through all that additional paperwork, when an LLC will produce the same results for you at one tenth the hassle.

If you do insist on continuing the S corporation route, and do not want to pay a CPA, then spend $65 on TheTaxBook. It has an entire section on how to handle S corporation tax returns along with a comprehensive example of how to fill out the forms, plus another section on how to do payroll. Just as it takes time to learn how to develop a web site, it takes time to figure out how to fill out tax returns.

Bees Knees I appreciate your patience and your willingness to help me. It must be a Minnesota thing

I can indeed answer no to all of the answers above. I have not used my Tax ID for anything. I think I will just file as a sole prop one more year. I have read up today on the 1120 and now know what 'should' have happended throughout the year. I'll have to find out if the IRS has to be alerted to this, since I still have a registered scorp.

I guess I will have to look long and hard on whether scorp or LLC will be best for me in the future. I do hope to make 20-40k in 2007 so that might influence it a bit.

Thanks again, Who know's maybe we drove past eachother on the lake before?

WebProgrammer

[DaveO]

You asked a very complex question

People on this board can be very helpful, but you need to ask a concise question. Had your question been something along the lines of "I'm a new S-Corp and didn't file my Form 2553 on time, What can I do?" you would have recieved an answer you could use. (You did file your 2553 on time, didn't you?)

You question was more along the lines of, "I just erased my Windows registry file, can you tell me what I need to type in so my computer works again?"

Corporate returns are much more complex than a 1040. Once you add payroll into the mix you are filing about 20 returns each year to the various taxing authorities.

Moreover, once you mess up in tax work it can take months to get things straightend out again. There is no Ctrl-Alt-Delete command to get a do-over.

Get ahold of the 1120-S book and at least know what you are getting into. Now can anyone tell me why IE 7.0 crashes whenever I try to open a .pdf file directly into my browser window?

[WebProgrammer]

People on this board can be very helpful, but you need to ask a concise question. Had your question been something along the lines of "I'm a new S-Corp and didn't file my Form 2553 on time, What can I do?" you would have recieved an answer you could use. (You did file your 2553 on time, didn't you?)

You question was more along the lines of, "I just erased my Windows registry file, can you tell me what I need to type in so my computer works again?"

Corporate returns are much more complex than a 1040. Once you add payroll into the mix you are filing about 20 returns each year to the various taxing authorities.

Moreover, once you mess up in tax work it can take months to get things straightend out again. There is no Ctrl-Alt-Delete command to get a do-over.

Get ahold of the 1120-S book and at least know what you are getting into. Now can anyone tell me why IE 7.0 crashes whenever I try to open a .pdf file directly into my browser window?

Dave,

I guess I should have had all my terminology in order before asking. Thanks for that.

On your PDF question, DUMP ADOBE ASAP. Goto http://www.foxit.com and download it. It's free and much lighter/faster than Adobe Reader.

WebProgrammer

[Bees Knees]

I can indeed answer no to all of the answers above. I have not used my Tax ID for anything. I think I will just file as a sole prop one more year. I have read up today on the 1120 and now know what 'should' have happended throughout the year. I'll have to find out if the IRS has to be alerted to this, since I still have a registered scorp.

I guess I will have to look long and hard on whether scorp or LLC will be best for me in the future. I do hope to make 20-40k in 2007 so that might influence it a bit.

I have talked many clients out of incorporating. I know this goes against many accountants and lawyers who want to make money on the extra filing stuff, but I truly believe 99% of all the small business owners out their only need the LLC status. You get to continue to file the Schedule C as always. The extra paper work involved with a corporation is simply not worth it. I can't tell you how many times clients who did incorporate later regretted the decision, after finding out just how much of a hassle it is. I STRONGLY recommend you dissolve the incorporation stuff with your state. If no assets were transferred, it is simply a matter of writing a letter to IRS and your state telling them the corporation was never activated and no money or property was ever transferred to it.

As to others giving you a hard time on this board, don’t let that stop you from coming back. We have a lot of good people on this message board that are willing to help you. Maybe we can get advice out of you too in return.

Welcome.

[WebProgrammer]

I have talked many clients out of incorporating. I know this goes against many accountants and lawyers who want to make money on the extra filing stuff, but I truly believe 99% of all the small business owners out their only need the LLC status. You get to continue to file the Schedule C as always. The extra paper work involved with a corporation is simply not worth it. I can't tell you how many times clients who did incorporate later regretted the decision, after finding out just how much of a hassle it is. I STRONGLY recommend you dissolve the incorporation stuff with your state. If no assets were transferred, it is simply a matter of writing a letter to IRS and your state telling them the corporation was never activated and no money or property was ever transferred to it.

As to others giving you a hard time on this board, don’t let that stop you from coming back. We have a lot of good people on this message board that are willing to help you. Maybe we can get advice out of you too in return.

Welcome.

Thanks Bees! After further reading today, LLC certainly looks like it would work much better for me.

BTW, I'm going to order the tax book as well.

If I want to transfer to LLC, should I do that before I dissolve the s corp or after?

WebProgrammer

[Uncle Sam]

S Corp Problems

Sorry Bees Nees-
As you can probably tell, I'm a recent addition to this board. This is a PRACTITIONER TO PRACTITIONER board where those of us in the business present puzzling problems for other practitioners to assist in who are conversant with the tax language, rules, procedures, requirements, etc.
It's not meant for these "do-it-myselfers" who are looking for us to provide blind advice without knowing all the material facts to test us out.
I had experience years ago with a long time client who, no matter what I explained to her - would then go to an internet chat board and later come back to me with a second opinion continuously attempting to prove to me that I'm wrong. This is a person who would continuously twist facts and/or hide facts so she'd get the answer she'd like to hear rather than the truth. Finally I had to send her on her merry way.
WebProgrammer here is the same way. From what he's told us, he's already boluxed things up wanting to be a "do-it-myselfer" and expects us to bail him out of his problems.
This is a person I'd rather stay away from.

[dsi]

Web Programmer, When you initially formed your corp, didn't you incur any expenses? I would assume you had to pay corporate filing fees with your state at a minimum. If so, then you should have filed a 2005 return. Also, you now have a 2006 return to file as well.
I strongly suggest you keep a double entry set of books in order to track your basis (whether it be stock, debt, etc.) You will need to know this info from time-to-time.