Question

Switch Income from sole propietor to s-corp llc

Forum|Forum|5 years ago
April 23, 2021
1 reply
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I started receiving income as sole proprietor in Jan & just incorporated as an LLC on 4/21/2021. Can the income from Jan thru April count for the LLC or does it have to fall under the sole proprietorship? Wondering if I pay self-employment taxes or a paycheck with associated taxes ?

Not A Product Question

Carl11_2

Employee

I have the feeling you may need to seek professional help, before you dig to deep, what may turn into a bottomless pit.

For starters, a single member LLC is not incorporated. As far as the IRS is concerned a single member LLC is a disregauarded entity, the same as a sole proprietorship is. For the sole proprietorship or single member LLC all income is reported on SCH C as a physical part of your personal 1040 tax return.

If you filed IRS Form 2553 with the IRS to treat your LLC "like an S-Corp" understand that is for "tax purposes only" and nothing else. Additionally, if you want the business to be treated like an S-Corp, then the business must "act" like an S-Corp and follow all laws at both federal and state level that govern an S-Corp.

An S-Corp must file it's own physically separate tax return on IRS Form 1120-S - U.S. Income Tax Return For An S-Corporation. The 1120-S is due by March 15th, and as of this date the filing deadline for an S-Corp has not been extended by the IRS. The late filing penalty for an S-Corp is $200 per month, for each owner in the S-Corp. So as it stands now you're looking at a $200 penalty, increasing to $400 after May 15th. (Assuming the standard fiscal year is used by the S-Corp)

Additionally, you can't file your personal 1040 tax return until after the 1120-S has been completed and all K-1's are issued to all owners of the business. You will need that K-1 to complete your personal tax return with.

To complete a corporate tax return requires TurboTax Business (different from Home & Businsess) which can be purchased at https://turbotax.intuit.com/small-business-taxes/ TurboTax business is not available as an online product or for MACs. It's for the Windows operating system only.

I would highly suggest you seek professional help ASAP instead of trying to tackle this yourself this late in the year. Especially if your state taxes personal income, as your fines and penalties for a late filing could be a real double-whammy and could make the cost of professional help seem like a pittance in comparison.

Rick19744

Employee

@Carl11_2 the facts stated by the OP indicate that this has occurred in 2021, and as such, there is no reporting requirement for the S corp at this time, so no penalties.

I also recommend that you consult with a tax professional. This individual can give you the pros and cons of each entity structure and provide guidance on what filings are needed depending on the entity you chose.

You need to make sure that you don't end up with a foot fault and end up in a quagmire of letter writing to the IRS. A tax professional can help in that area.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.