Filing of 1120S

[Taxman]

I have a potential new client who filed to be an S-Corp as of 4/1/05. He had been a sole proprietor. He opened a bank account under the S-Corp EIN and has being running all of his income and expenses through the account. Since this is the first year the S-Corp would be filing, does he have to file as an S-Corp or can he still file as a sole proprietor and never recoginze the S-Corp has having been in effect? He just came to me last week and I told him about the payroll taxes he should have been paying as an employee of the S-Corp, which he did not pay. Any thoughts would help. Thanks

[rosieea]

I have a potential new client who filed to be an S-Corp as of 4/1/05. He had been a sole proprietor. He opened a bank account under the S-Corp EIN and has being running all of his income and expenses through the account. Since this is the first year the S-Corp would be filing, does he have to file as an S-Corp or can he still file as a sole proprietor and never recoginze the S-Corp has having been in effect? He just came to me last week and I told him about the payroll taxes he should have been paying as an employee of the S-Corp, which he did not pay. Any thoughts would help. Thanks

IRS will be expecting a 2005 1120S. If he just took distributions instead of salary, he could be audit bait, but there's not a lot that can be done at this point, although I suppose 941s, etc could be filed late. If we're talking about a lot of income, you may want to do that. Your client should, of course, file a Sch C for the 1st 3 months of the year and an 1120S for 4/1 thru 12/31.

[Taxman]

Thanks

for the response. I figured he would have to file the 1120S. We're going to file sch C for Jan - Mar and then the 1120S for Apr - Dec. I told him more likely then not the IRS will have a problem with no wages being paid. He took distributions of about $30,000 about the same amount of net income. Thanks again.

[Bucky]

It's not to late to show payroll for 4th quarter 2005. You could pay $16,000 with just FICA and Medicare withheld and stay under of $2500 for 941. Don't withhold Fed or State.

[geekgirldany]

I'd also suggest doing a payroll also. I've had this happen many times and do a payroll even if the 941 is late.

[Matt Sova]

4th q 941

Do a 4th q 941 as suggested - 12k would end up with $1,836 of SS and Med tax. Do 0 Fed W/H and pay the 1,836 with the 941 due at the end of the month.

Matt

[OldJack]

He opened a bank account under the S-Corp EIN and has being running all of his income and expenses through the account.

The S-corp did business with a bank account and is required to file to report such business. I agree with other posts regarding payroll.