scorp problems

[Bees Knees]

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

Since nothing was ever transferred to the S corp, it really does not matter, as that is a non-entity. The LLC is simply a filing with the state issue. For federal tax purposes, nothing happens. I do know that some states charge annual filing fees for LLC status, so you would want to check that out before jumping into it. In Minnesota, it doesn’t cost us anything, so we push them all the time here.

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.

There are no rules requiring professional tax preparation credentials before being allowed to post on this web site. You also are not required to answer someone's question.

I do agree with you, however, in the case of a taxpayer coming on here asking questions and then going back to his or her tax preparer and trying to tell the pro what to do. I don’t go for that either. As to this guy, he is a do it yourselfer, and I doubt we are going to ever take away professional fees from any of our people, as this guy is bent on doing it himself, period, end of story.

BTW, I got into the tax business back in 1982 because everyone kept telling me all kinds of crazy things that I could deduct. Being a math guy in high school and a professional musician in college, I was not about to go to some tax pro for advice. So I got into the tax biz mainly to figure out how to do my own 5 Schedule Cs that I was filing at the time. I suspect Web guy is smart enough to figure things out, as long as he doesn’t let some fancy attorney talk him into being a corporation.

[Bees Knees]

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.

There is no requirement to file a corporate return, if as web guy says, he never transferred any assets to the corporation or opened a corporate checking account. Losing a deduction for a few dollars spent on filing fees is small potatoes compared to the hassle of having to file all those corporate returns for all eternity.

[BOB W]

Bees, Web guy,

Incorporating to become an S has advantages and disadvantages. For a do it yourselfer, it is better to be a Single Member LLC or sole proprietor with liability insurance.

For any kind of tax advantage, it is better to be an S corp. Most SCorp businesses, even after CPA fees, will pay out less than a sole proprietor will on his tax return.

Bees> There may not be a Federal requirement, but a state return is definitley due. If just to dissolve it.

[WebProgrammer]

Incorporating to become an S has advantages and disadvantages. For a do it yourselfer, it is better to be a Single Member LLC or sole proprietor with liability insurance.

For any kind of tax advantage, it is better to be an S corp. Most SCorp businesses, even after CPA fees, will pay out less than a sole proprietor will on his tax return.

Bob, I read in a Inc. book that this tax benefit does not get reached until your business income > x$. The book is a few years old so I'm not sure if this still applies. I thought it was $30k

[Bees Knees]

For any kind of tax advantage, it is better to be an S corp. Most SCorp businesses, even after CPA fees, will pay out less than a sole proprietor will on his tax return.

Bees> There may not be a Federal requirement, but a state return is definitley due. If just to dissolve it.

Not in Minnesota. I suspect many states do. It all depends.


I agree and I disagree on the tax savings thing. It use to be that way. I’ve been to enough tax seminars lately to know that IRS is zeroing in on S corporations paying lower wages to save on FICA. Some experts now believe anything below FICA max is too low. IRS knows all about what we have been getting away with, and every audit coming down the pike is going to be on the reasonable comp issue. A guy making 30K to 40K has no business anymore playing the beat the FICA tax game with S corps.

[BOB W]

$30000.00

Will cause you to pay Approx $4,590 just in SS taxes as a sole proprietor. If you were an S Corp with $30,000 of profit, before Payroll, your SS tax would be ZERO. Since an S Corp would require some payroll, say $10,000, your SS tax would be $1,530. Of course you must realize you will only be getting credit with SS on the $10,000 not the $30,000 as you would being a sole proprietor. The difference, $3,060, is the savings that can be used to grow your business.

As your business grows you can pay more into SS if you choose.

[Black Bart]

Dear WebProgrammer,

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

Just curious, but what do "they" say about accountants?

Thanks.

[geekgirldany]

People who are already in business and ask me if they should incoporate... well I tell them that they must make between $40,000 to $50,000 in net profit per year. To me a reasonable living salary is between 30,000 to 40,000 the rest can be distributions. Of course as the business grows I also think their salary should grow some too. If they are a new business then I will tell them to incorporate the advantages, disadvantages, about LLCs and then let them decide which they can handle best.

[Unregistered]

A single S/H who is responsible for making all of the income? Unless you can justify not taking it all as wages/salary, then you may have a problem. If you had employees, then you're cut a little slack, but not much.

[sea-tax]

I went to a business update seminar just the other day and the speaker had some interesting points. He stated that he has never heard or seen a court case in regards to officer comp in a s-corp that the taxpayer lost if the taxpayer had at least 5300 dollars of officer comp. In other words the cases where by the taxpayer lost they had paid less than 5300 or in fact zero wages.
I have not researched this fact but just thought it interesting .

[Bees Knees]

That is old information. Yes it is true in the past, because none of the new audits have been challenged in court yet. A seminar speaker who has been involved with the new S corp audits on this issue said IRS auditors are asking for Social Security maximum wages. That is there starting point. They might go down from there, but trying to get them to drop from $94,200 to $5,000 is a long jump.

[sea-tax]

That is old information. Yes it is true in the past, because none of the new audits have been challenged in court yet. A seminar speaker who has been involved with the new S corp audits on this issue said IRS auditors are asking for Social Security maximum wages. That is there starting point. They might go down from there, but trying to get them to drop from $94,200 to $5,000 is a long jump.

I agree Bees it is a long jump. Like I said before just thought it interesting. The speaker also mentioned that one way to combat the auditor was to use court cases from Ccorp tax cases in which the IRS tried to push down the officer comp.
His idea was that it is hard for the IRS to take say two roofing contractors one an S-corp and one a C-corp and say no the C-corp paid too much but then turn around and say the S-corp paid to little. His opinion was that the IRS can not have it both ways.

[Bees Knees]

The problem is, those C corp court cases are dealing with shareholders trying to justify six and seven figure salaries and bonuses. IRS tries to get those salaries down from $500,000 to only $200,000.

Those numbers are a little different than an S corp trying to justify a salary of $5,000.

[sea-tax]

Well Bees aren't you just MR negativity. I was only relaying some info that I had heard I offered no opinion as to what I thought . The speaker had made it sound as if he had first hand knowledge of this working and has argued these types of cases before. I guess he was full of it !

[Unregistered]

IRS always wins

"IRS has won EVERY case involving undercompensation of S corp shareholders, and the courts have not even compromised on the amount of taxes, interest, and penalties levied by IRS" This is from a recent seminar I attended in Minneapolis. See Radtke v. U.S., Spicer Accounting v. U.S., Esser v. U.S., Wiley L. Barron, CPA v. Commissioner.