CPA tax retrun

[TAX]

Quick question.

A one person cpa firm can be scorporation and therefor can file 1120S, right?

Some one told me a CPA firm can not. Just wanted to double check.

Thanks!

[Lion]

Cpa

The instructions for Form 2553 don't prohibit CPA firms. Tried to paste instructions, but forgot how to get just part of a column. You can read them. But, check with your state, since you'll be incorporating under the laws of your state (or the laws of the state under which you incorporate and the laws of the states where you'll register to do business). Your friendly, local CPA society can probably tell you what you need to know, also. Did you already file your form and not yet receive IRS acceptance. Call them. Otherwise, when you receive your IRS acceptance letter, you'll know you can be an S-Corporation!

[TAX]

Thanks...

I already received IRS acceptance Letter!

[sea-tax]

There is no federal law that I am aware of that limits S-corp or C-corp status to a CPA or EA.


However some states may prohibit it so check with your state board of accountancy.

[Bees Knees]

The only thing a state accounting board can prohibit is the formation of a corporation under state law. Accounting laws at the state level generally want the CPA owner to take personal liability for the actions of his/her firm. A sole proprietor or partnership may be the only option since the owners are 100% liable for all actions of their business.

Even if that is the case, there is nothing a state accounting board can do to prohibit an entity to elect corporate treatment at the federal level. For federal tax purposes, you can elect to be taxed as an S corporation, even though you are not a corporation under state law. The federal tax treatment as an S corporation would provide no limited liability protection for the owner, as that can only be granted at the state level.

[sea-tax]

The only thing a state accounting board can prohibit is the formation of a corporation under state law. Accounting laws at the state level generally want the CPA owner to take personal liability for the actions of his/her firm. A sole proprietor or partnership may be the only option since the owners are 100% liable for all actions of their business.

Even if that is the case, there is nothing a state accounting board can do to prohibit an entity to elect corporate treatment at the federal level. For federal tax purposes, you can elect to be taxed as an S corporation, even though you are not a corporation under state law. The federal tax treatment as an S corporation would provide no limited liability protection for the owner, as that can only be granted at the state level.

Interesting Bees, I have never thought about it like that.
So then would they have to maintain two sets of books and balance sheets?

[John of PA]

S Corp does not make sense.

First off, your not protected legally; then you must be on a payroll with taxes withheld; so a proprietorship makes sense for a one person firm. Oh there is one small advantage of the Corp stucture, you would be protected against creditors if you went bankrupt, but very few CPA's go bankrupt. (there is no Corporate protection if someone trips and falls and sues you, and of course, no protection for malpractice). So witht he S Corp, you have more adminstative burden, with no real advantages. My advice is to dissolve.

[Bees Knees]

The advantage to electing S corp treatment at the federal level is to shield a certain amount of income from Social Security tax. Instead of a Schedule C subject to SE tax on a $100,000 profit, you have an S corporation shareholder/employee on salary for $60,000 with a $40,000 distribution from profits not subject to SE or FICA tax.

Of course you don't get liability protection, but my opinion is no single shareholder S corporation, even if it is incorporated under state law gets any liability protection. Creditors want your personal guarantee, and any lawsuit is going to name the principal owner as well as the corporation.

As to the two sets of books issue, why do you think two sets of books are required? Schedule M-1 reconciles the difference between income per books and income per tax return. No different than if the corporation actually incorporated under state law.

[sea-tax]

The advantage to electing S corp treatment at the federal level is to shield a certain amount of income from Social Security tax. Instead of a Schedule C subject to SE tax on a $100,000 profit, you have an S corporation shareholder/employee on salary for $60,000 with a $40,000 distribution from profits not subject to SE or FICA tax.

Of course you don't get liability protection, but my opinion is no single shareholder S corporation, even if it is incorporated under state law gets any liability protection. Creditors want your personal guarantee, and any lawsuit is going to name the principal owner as well as the corporation.

As to the two sets of books issue, why do you think two sets of books are required? Schedule M-1 reconciles the difference between income per books and income per tax return. No different than if the corporation actually incorporated under state law.

Yes but don't partnerships and corporation have slightly different balance sheets. What I was refering to was filing federally as a corp and state wise as a partnership.
Or I thought this was what you had suggested.

[TAX]

Thanks...

The advantage to electing S corp treatment at the federal level is to shield a certain amount of income from Social Security tax. Instead of a Schedule C subject to SE tax on a $100,000 profit, you have an S corporation shareholder/employee on salary for $60,000 with a $40,000 distribution from profits not subject to SE or FICA tax.

Of course you don't get liability protection, but my opinion is no single shareholder S corporation, even if it is incorporated under state law gets any liability protection. Creditors want your personal guarantee, and any lawsuit is going to name the principal owner as well as the corporation.

As to the two sets of books issue, why do you think two sets of books are required? Schedule M-1 reconciles the difference between income per books and income per tax return. No different than if the corporation actually incorporated under state law.

This is one of the reasons why I chose it. I am on payroll. Also, from Marketing point of view it looks more impressive as I am still growing. Yes, it is more admin work but it is worth it. Also, I can tell bargainers that it is company policy and not mine etc. Further, Sch C has more chances of Audit compare to S corp. Not that I am doing anything wrong but why go through hassle when you do not have to as much in Scorp.

[Bees Knees]

Yes but don't partnerships and corporation have slightly different balance sheets. What I was refering to was filing federally as a corp and state wise as a partnership.
Or I thought this was what you had suggested.

MN follows the federal check the box rules. If you elect to be taxed as an S corporation on the federal return, the state of MN will tax you as an S corporation, even if you are not incorporated under state law.

States that do not allow accountants to form corporations are concerned with liability issues, not tax issues. So even though the accounting firm could be a partnership under state law, the state revenue department may still allow it to be taxed as an S corporation, if the state follows the federal check the box rules. I don't know which states this might apply to, but electing tax treatment and incorporating to receive liability protection are two different things.

Regardless, even if the state required you to file as a partnership under state tax rules while filing as an S corporation for federal rules, you still only have one set of books. You have a Schedule M-1 reconciliation statement for federal differences between book and tax, and a similar reconciliation statement on the state return between book and tax. It still would not require more than one set of books. It is just a simple matter of reconciling the differences between book and tax for both federal and state tax purposes. Really, there are only a handful of items that ever need reconciling on a small business tax return.

[Bees Knees]

This is one of the reasons why I chose it. I am on payroll. Also, from Marketing point of view it looks more impressive as I am still growing.

If your state accounting board says you cannot be a corporation, you cannot advertise yourself as a corporation. The federal election that allows you to be taxed as an S corporation has nothing to do with your business organizational structure. It merely says you can file an 1120S and payroll tax returns. It does not give you the right to market yourself as an S corporation.

[TAX]

If your state accounting board says you cannot be a corporation, you cannot advertise yourself as a corporation. The federal election that allows you to be taxed as an S corporation has nothing to do with your business organizational structure. It merely says you can file an 1120S and payroll tax returns. It does not give you the right to market yourself as an S corporation.

In did apply with the state board & paid license fees for the firm in addition to the fee for my self. They did not ask me any questions. I will double check with state just in case. Thanks!

[Davc]

States never ask questions when receiving money.

[Joe Btfsplk]

Cpa Inc

In Texas a CPA can incorporate as a P.C. (Professional Corporation) and cannot limit his liability as a CPA based on being incorporated. The P.C. can elect to be taxed as an S Corporation.

A Texas CPA can also form an LLC, but again, cannot escape any responsibility as a CPA. There might be some protection for something unrelated to his profession.

A number of years a Texas CPA could only function as a sole proprietorship or as a partnership. This was changed 20 or 30 years ago. Years ago, a CPA was not allowed to advertise. That also has been changed.