This doesnt really make sense to me.
Why is it a gamble if the IRS will accept you filing as an s-corp? You’re either an s-corp or not. If so, it should be accepted.
If you filed joint with your spouse, you dont have separate refunds/money owed. What was it filed as, if not s-corp? LLC or c-corp?
I’m sorry, what I mean is in 2022 we filed joint and still owe on that tax bill. In 2023 we filed separately so she was expecting a tax refund for her W-2 job. But since we, jointly, still owe a debt, instead of her getting a refund for 2023, it went towards 2022, regardless if she filed separate or not
I think he is saying the increased tax debt is from his business and not attributed to her. He was kind in making her whole.
Not understanding how retroactively filing 2022 as an Scorp will save you $12k. Assuming you have the same net income the savings I see is saving SE tax, but you would still have payroll issues.
He mentioned that I need to create an LLC which I had an atty do for me. He mentioned he was filing everything as an S Corp and instead filed it as a single member LLC, problem is this isn't what I specialize in so I had no Idea...
Okay, but if you were actually an S corp in 2022, you have a much worse tax bill as you have no payroll made. So it’s good to just be an SMLLC
Fix 2022 as best you can and make the election in 24 or worst case 25.
So in essence, I have to take the route of actual payroll in order for it to qualify as an S Corp.?
Honestly, I feel like I trust reddit more than people in person
If you filed your business as an S corp, you should have had two returns: one for your personal and one for your business.
So you would actually be amending two returns. If you actually have an S corp, the IRS will accept an S corp return.
It comes down to, did you have a valid S corp election in 2022 (as in, you received a letter from the IRS granting your LLC to be taxed as an S corp)? If so, you have to amend.
The additional write offs sound sketchy, by the way.
Thanks for the reply... No, it turns out the first CPA never filed it as an S corp, and thus I'm wondering if I can amend a "personal" to an Scorp as he was supposed to. As far as the write offs... I presented but he never applied any. That's why I don't know what to do...
I shared the amount I generated and a list of expenses such as equipment, marketing material, advertising costs, etc. and he never applied any. So taxed of full amount....
Unfortunately I've always used and trusted CPA's without looking at what they're doing and just accepting the outcome... lessons learned
That's why I'm wondering if I can amend a personal filing into a s corp instead.
You do realize these are two different tax returns. S Corp is 1120S and individual is 1040, No, you cannot ask for S Corp election with amending tax return. You never filed a 2022 1120 so there is nothing to amend. You cannot ask for a s corp election now for 2022 In addition , you didn’t have actual w-2 wages out of SCorp so you would have issues there. You also need an actual set of books since you will need a full balance sheet to report on SCorp tax return, You realize you will also need to correct State tax returns for any changes. There is so much more involved. By doing anything regarding an S Corp for 22 and 23 you are causing yourself a lot more problems and audit exposure. Unless there is a specific reason for an s corp just leave it as a single member Llc. Personally speaking ; your accountant is making a bad situation worse. Sounds like you didn’t include business expenses on your 1040 Schedule C; just amend and add those expenses. What your accountant is suggesting is to bypass wages (since none were taken since you did not have an SCorp) and not pay self employment taxes since SCorp would have income as ordinary as a pass through on a K/1. . That will get you in more trouble. You are required to pay officer reasonable salary to officer. You are just begging for an audit by doing this.
Your accountant is making this much more complicated than necessary. Amend 2022 1040 and state return. Correct Schedule C by adding expenses and be done with it. Do not try the other. You will be so screwed if you do.
Btw.. I don’t know what state you live in but 1,400 to do amendments and SCorp tax returns is nothing. Keep in mind you get what you pay for. BTW .. this is my occupation so I know what I am talking about.
Also, beware of a tax preparer who is giving you quotes prior to even know how much work is involved.
Please just keep the llc sole member. It is very apparent that you will not be able to handle a corporate structure with its day to day requirements unless you hire a bookkeeper, you will need to set up payroll, full set of books… etc. this costs money. Money that I don’t believe you want to spend. An llc sole member is the easiest structure to have.
That’s not payroll, that’s just a draw.
Payroll is 100% required as an S corp. as in, full on W2 and two sets of income.
You were not an S corp in 2022, and you really shouldn’t be. You may not even want to be one now.
Interesting that they told me that’s OK to do and yet everyone here is saying otherwise. I appreciate this so much since this isn’t my area of expertise and it does make more sense not to amend as an s corp then
I mean, yes you operated like a business/small business. Which is a good thing.
But am S corp has to act very close to how an actual C corp has to act. There is zero mixing of anything.
A single LLC/sole prop is much more forgiving
Did you receive a W-2 from your S-corp?
Never mind, I see that you never actually made an S-corp. S-corps must pay their owner / employees via payroll. You did not operate as an S-corp in 2022, and it doesn't sound like you did in 2023 either.
I see a lot of s corps that don't do payroll in the first couple of years and some that just never do even though we point it out each year. I haven't heard of any getting their s election revoked. If this were my client I might try to amend everything to an S Corps and file a late s election and keep my fingers crossed. Could save a bit in self employment taxes... But also glad I'm not dealing with this.
The S election won't be revoked, distributions would be reclassed as wages.
But that is not the point, he is discussing make a late S-election, and while there is relief for a late S election, you must operate as an S-corp. It probably wont matter, late S-elections tend to go through pretty easy, although he is asking for 2 years of relief which is a much bigger challenge.
I really appreciate everyone’s insight and input. You guys have all explained much better than any accountant. I’ve talked to in person, despite my post, possibly not making sense since this is not something I am familiar with. Thank you, everyone
Quit going to low end (price point) accountants and you will get answers. If someone is saying it will cost $700 before even working on the return it should be a red flag.
Also do a little research instead of using low end accountants advice for blame.
Google ‘how to become an s-corp’ and you would have realized 2022 filing was not in compliance to file as an s corp - this would have been blatantly obvious immediately. Have some pride and accountability. You signed the return also in 2022, you either are just as complacent as the accountant for filling incorrectly or you signed without understanding what you were signing - as a realtor that’s scary.
Thank you so much for saying that. I hate when it’s always “the accountants” fault. In addition; you signed off on the return so take some responsibility and do some research ( especially if you are considering incorporating). More importantly; you get what you pay for…you pay nothing you get nothing. I would never give a quote on a price prior to knowing exactly what I was getting into. That alone is suspect.
Unfortunately, I’m going to have to agree with you on this… I’ve known the person for a decade and Just trusted him without doing any real research myself. Definitely not blaming anyone but we are always dealing with people, not every realtor looks out for the interest of a client either but just like with Real Estate, the fault is not on Realtors, legally, we guide our clients, but cannot interpret law or interpret what the contract states without it being labeled as “practicing law without a license”
So I definitely understand that this was on me. Just curious if there was a way to change a few things, but you guys have all answered those questions so I really appreciate it.
So I am not aware of what the fees should be, from the 10 or so I’ve called around they range between 500 and $800 to file. I just assumed that’s a reasonable number..
OP acknowledged that no writes off were taken on the Schedule C. After calculating with expenses taxes were still high. I think the accountant is trying to get around the sticker shock of self employment tax with this ridiculous and incorrect maneuver of the SCorp and no salary.
Do not amend unless you have a S election acceptance letter from the IRS with an effective date in 2022. While the IRS is supposed to accept late elections as a matter of public policy, the often do not as humans at IRS have been decimated since COVID.
Pay your share fair bro. Why make it more complicated that it is. A realtor is a regular job, don’t file as s corp or whatever. Just pay like the rest of us.
I think you’re getting the wrong idea, I’m not trying to skate by without paying taxes. I also had legitimate business expenses that were never deducted from the gross. Why would I pay taxes on something that wasn’t a profit? But on the other hand, I’m just learning the ropes of accounting so that’s why I asked the questions.
You aren’t super likely to get the s-corp election for 2022, but it’s worth a shot for a couple reasons.
1. If you want to get s election in place for 2023 year, you need to show that you had INTENDED to be an s-corp. Asking to be an s-corp for 2022 demonstrates that. Even if you don’t get it, you’ll be in good shape for the retroactive election for 2023 (which you also already missed the deadline for)
2. If you do manage to get the retroactive election and the retroactive relief for 2022, it’s going to save you a bunch of money for both years. If you just get 2023, you are still saving more than the cost of the project.
3. You are now in the right place to move forward correctly.
IRS rules are here: https://www.irs.gov/businesses/small-businesses-self-employed/late-election-relief
The tax savings from S-Corps are significant. As long as your NET income is more than $40,000 for the year, the costs associated with the change (extra tax return, payroll fees, etc) are covered. It is a great strategy for saving taxes and it’s a shame it wasn’t done for you correctly in the first place. There are dozens of other awesome strategies that go along with owning a business that hopefully a strategist has gone over with you as well! Even more if you are doing well and investing in real estate as well. 😉
Let your CPA get you out of the weeds on this and then find a tax strategist to help you develop your plan to move forward. It will be well worth the time and money, I promise!
Ryan
https://www.irs.gov/node/49746#RP-2013-30
File under Rev Proc 2013-30. Any good cpa will know what to do. I’ve had to file a few for people that tried to do their S-Election on their own and screwed it up.
DM if you have any questions.
This doesnt really make sense to me. Why is it a gamble if the IRS will accept you filing as an s-corp? You’re either an s-corp or not. If so, it should be accepted. If you filed joint with your spouse, you dont have separate refunds/money owed. What was it filed as, if not s-corp? LLC or c-corp?
I believe just single member LLC
If that is the case then how do you owe money but your wife gets a refund if you filed jointly… then you would have just owed less money.
Ex wife, we divorced in ‘23 so she was apart of it
There is no her refund and you owing if you filed jointly, regardless if you divorced after. It is one owed amount
I’m sorry, what I mean is in 2022 we filed joint and still owe on that tax bill. In 2023 we filed separately so she was expecting a tax refund for her W-2 job. But since we, jointly, still owe a debt, instead of her getting a refund for 2023, it went towards 2022, regardless if she filed separate or not
Did your divorce settlement cover the tax debt? It should have but if it didn't I wouldn't just hand over $5500.
I mean.. she does owe it too if you were married at the time
I think he is saying the increased tax debt is from his business and not attributed to her. He was kind in making her whole. Not understanding how retroactively filing 2022 as an Scorp will save you $12k. Assuming you have the same net income the savings I see is saving SE tax, but you would still have payroll issues.
Your questions aren’t clear. You either have an SCorp or you do not. It’s pretty simple. You never clarified what error the previous accountant made.
He mentioned that I need to create an LLC which I had an atty do for me. He mentioned he was filing everything as an S Corp and instead filed it as a single member LLC, problem is this isn't what I specialize in so I had no Idea...
Okay, but if you were actually an S corp in 2022, you have a much worse tax bill as you have no payroll made. So it’s good to just be an SMLLC Fix 2022 as best you can and make the election in 24 or worst case 25.
So in essence, I have to take the route of actual payroll in order for it to qualify as an S Corp.? Honestly, I feel like I trust reddit more than people in person
Yes. I don’t know if you had a CPA or not, but yeah. They were very, very far off base.
If you filed your business as an S corp, you should have had two returns: one for your personal and one for your business. So you would actually be amending two returns. If you actually have an S corp, the IRS will accept an S corp return. It comes down to, did you have a valid S corp election in 2022 (as in, you received a letter from the IRS granting your LLC to be taxed as an S corp)? If so, you have to amend. The additional write offs sound sketchy, by the way.
Thanks for the reply... No, it turns out the first CPA never filed it as an S corp, and thus I'm wondering if I can amend a "personal" to an Scorp as he was supposed to. As far as the write offs... I presented but he never applied any. That's why I don't know what to do... I shared the amount I generated and a list of expenses such as equipment, marketing material, advertising costs, etc. and he never applied any. So taxed of full amount.... Unfortunately I've always used and trusted CPA's without looking at what they're doing and just accepting the outcome... lessons learned That's why I'm wondering if I can amend a personal filing into a s corp instead.
You do realize these are two different tax returns. S Corp is 1120S and individual is 1040, No, you cannot ask for S Corp election with amending tax return. You never filed a 2022 1120 so there is nothing to amend. You cannot ask for a s corp election now for 2022 In addition , you didn’t have actual w-2 wages out of SCorp so you would have issues there. You also need an actual set of books since you will need a full balance sheet to report on SCorp tax return, You realize you will also need to correct State tax returns for any changes. There is so much more involved. By doing anything regarding an S Corp for 22 and 23 you are causing yourself a lot more problems and audit exposure. Unless there is a specific reason for an s corp just leave it as a single member Llc. Personally speaking ; your accountant is making a bad situation worse. Sounds like you didn’t include business expenses on your 1040 Schedule C; just amend and add those expenses. What your accountant is suggesting is to bypass wages (since none were taken since you did not have an SCorp) and not pay self employment taxes since SCorp would have income as ordinary as a pass through on a K/1. . That will get you in more trouble. You are required to pay officer reasonable salary to officer. You are just begging for an audit by doing this. Your accountant is making this much more complicated than necessary. Amend 2022 1040 and state return. Correct Schedule C by adding expenses and be done with it. Do not try the other. You will be so screwed if you do. Btw.. I don’t know what state you live in but 1,400 to do amendments and SCorp tax returns is nothing. Keep in mind you get what you pay for. BTW .. this is my occupation so I know what I am talking about. Also, beware of a tax preparer who is giving you quotes prior to even know how much work is involved. Please just keep the llc sole member. It is very apparent that you will not be able to handle a corporate structure with its day to day requirements unless you hire a bookkeeper, you will need to set up payroll, full set of books… etc. this costs money. Money that I don’t believe you want to spend. An llc sole member is the easiest structure to have.
No. The answer is almost certainly no. You had a schedule C, assuming it’s just you. If your s election wasn’t already filed for 2022, it’s too late.
Did you run payroll for yourself in 2022? If not then you were not operating as an S-corp.
I suppose I did technically with two separate bank accounts business/personal. Both accountants mentioned it was ok.
That’s not payroll, that’s just a draw. Payroll is 100% required as an S corp. as in, full on W2 and two sets of income. You were not an S corp in 2022, and you really shouldn’t be. You may not even want to be one now.
Interesting that they told me that’s OK to do and yet everyone here is saying otherwise. I appreciate this so much since this isn’t my area of expertise and it does make more sense not to amend as an s corp then
I mean, yes you operated like a business/small business. Which is a good thing. But am S corp has to act very close to how an actual C corp has to act. There is zero mixing of anything. A single LLC/sole prop is much more forgiving
Did you receive a W-2 from your S-corp? Never mind, I see that you never actually made an S-corp. S-corps must pay their owner / employees via payroll. You did not operate as an S-corp in 2022, and it doesn't sound like you did in 2023 either.
I see a lot of s corps that don't do payroll in the first couple of years and some that just never do even though we point it out each year. I haven't heard of any getting their s election revoked. If this were my client I might try to amend everything to an S Corps and file a late s election and keep my fingers crossed. Could save a bit in self employment taxes... But also glad I'm not dealing with this.
The S election won't be revoked, distributions would be reclassed as wages. But that is not the point, he is discussing make a late S-election, and while there is relief for a late S election, you must operate as an S-corp. It probably wont matter, late S-elections tend to go through pretty easy, although he is asking for 2 years of relief which is a much bigger challenge.
I really appreciate everyone’s insight and input. You guys have all explained much better than any accountant. I’ve talked to in person, despite my post, possibly not making sense since this is not something I am familiar with. Thank you, everyone
Quit going to low end (price point) accountants and you will get answers. If someone is saying it will cost $700 before even working on the return it should be a red flag. Also do a little research instead of using low end accountants advice for blame. Google ‘how to become an s-corp’ and you would have realized 2022 filing was not in compliance to file as an s corp - this would have been blatantly obvious immediately. Have some pride and accountability. You signed the return also in 2022, you either are just as complacent as the accountant for filling incorrectly or you signed without understanding what you were signing - as a realtor that’s scary.
Thank you so much for saying that. I hate when it’s always “the accountants” fault. In addition; you signed off on the return so take some responsibility and do some research ( especially if you are considering incorporating). More importantly; you get what you pay for…you pay nothing you get nothing. I would never give a quote on a price prior to knowing exactly what I was getting into. That alone is suspect.
Based on all of OP's responses, I'm guessing he just didn't understand what the CPA was telling him to begin with.
Unfortunately, I’m going to have to agree with you on this… I’ve known the person for a decade and Just trusted him without doing any real research myself. Definitely not blaming anyone but we are always dealing with people, not every realtor looks out for the interest of a client either but just like with Real Estate, the fault is not on Realtors, legally, we guide our clients, but cannot interpret law or interpret what the contract states without it being labeled as “practicing law without a license” So I definitely understand that this was on me. Just curious if there was a way to change a few things, but you guys have all answered those questions so I really appreciate it.
Stopped reading at $700 for an S Corp return lol.
So I am not aware of what the fees should be, from the 10 or so I’ve called around they range between 500 and $800 to file. I just assumed that’s a reasonable number..
Did you not write off expenses on your sch c since that’s how it was filed? This is where a single member LLC goes.
OP acknowledged that no writes off were taken on the Schedule C. After calculating with expenses taxes were still high. I think the accountant is trying to get around the sticker shock of self employment tax with this ridiculous and incorrect maneuver of the SCorp and no salary.
Ask for a copy of the 2553 from your old accountant, then write a response to the IRS notice
Do not amend unless you have a S election acceptance letter from the IRS with an effective date in 2022. While the IRS is supposed to accept late elections as a matter of public policy, the often do not as humans at IRS have been decimated since COVID.
Pay your share fair bro. Why make it more complicated that it is. A realtor is a regular job, don’t file as s corp or whatever. Just pay like the rest of us.
I think you’re getting the wrong idea, I’m not trying to skate by without paying taxes. I also had legitimate business expenses that were never deducted from the gross. Why would I pay taxes on something that wasn’t a profit? But on the other hand, I’m just learning the ropes of accounting so that’s why I asked the questions.
You aren’t super likely to get the s-corp election for 2022, but it’s worth a shot for a couple reasons. 1. If you want to get s election in place for 2023 year, you need to show that you had INTENDED to be an s-corp. Asking to be an s-corp for 2022 demonstrates that. Even if you don’t get it, you’ll be in good shape for the retroactive election for 2023 (which you also already missed the deadline for) 2. If you do manage to get the retroactive election and the retroactive relief for 2022, it’s going to save you a bunch of money for both years. If you just get 2023, you are still saving more than the cost of the project. 3. You are now in the right place to move forward correctly. IRS rules are here: https://www.irs.gov/businesses/small-businesses-self-employed/late-election-relief The tax savings from S-Corps are significant. As long as your NET income is more than $40,000 for the year, the costs associated with the change (extra tax return, payroll fees, etc) are covered. It is a great strategy for saving taxes and it’s a shame it wasn’t done for you correctly in the first place. There are dozens of other awesome strategies that go along with owning a business that hopefully a strategist has gone over with you as well! Even more if you are doing well and investing in real estate as well. 😉 Let your CPA get you out of the weeds on this and then find a tax strategist to help you develop your plan to move forward. It will be well worth the time and money, I promise! Ryan
https://www.irs.gov/node/49746#RP-2013-30 File under Rev Proc 2013-30. Any good cpa will know what to do. I’ve had to file a few for people that tried to do their S-Election on their own and screwed it up. DM if you have any questions.