Weird tax question

April 13, 2005 10:24 AM

I have a weird tax situation, and I'm not even sure where to look to find information about it. The tax accountants I've asked haven't known.

Late last year (as in, December), I started a corporation. In my state, as in most, you must start it as a C-corp and then elect for S-Corp status via the IRS's form 2553, which I filed in January for the date my corporation started (you have 2.5 months to file) and sent it to the IRS. (They then notify your state gub'ment) In March, I heard back from the IRS that I had not filled in one of the boxes correctly. I corrected my error and faxed it back. And they take 60 days per filing to get back to you, so I haven't heard back yet.

Should I file personal and corporate taxes as if my company was an S-Corp or a C-corp? I had very few expenses last year and only made about $2300 (it was, after all, the startup period), didn't pay any dividends, but it's still a paperwork nightmare because that's still taxed, and the way it's taxed is likely to change next week ... or am I missing something else?

posted by SpecialK to work & money (7 comments total)

Pay the tax for the more conservative assumption (i.e., the biggest amount of tax paid) and file an extension?
posted by Doohickie at 10:26 AM on April 13, 2005

Can you file an extension and hope it gets resolved before then? Otherwise, do you need to file as a C-Corp and file an amendment to the return if/when the status changes?
posted by babar at 10:27 AM on April 13, 2005

Follow Doohickie's advice, then ask the IRS for an opinion.
posted by trharlan at 10:29 AM on April 13, 2005

Just file for an extension. It's my understanding that they pretty much just grant them as long as you send it in before your tax return is due. See Form 7004 Application for Automatic Extension of Time to File Corporation Income Tax Return and Form 4868 Application for Automatic Extension of Time to File U.S. Income Tax Return, all found here on the IRS website.
posted by MrZero at 11:39 AM on April 13, 2005

You should extend your personal return. Your corporate taxes are already late, since they were due on March 15, 2005, so there isn't too much you can do about that except to hope that the IRS accepts your S election (they probably will) since then you won't have any tax at the corporate level, so there will be no base to assess interest and penalties on.

When you calculate the personal extension, assume that S Corp status was granted, since that maximizes the tax at the personal level.
posted by anapestic at 1:34 PM on April 13, 2005

In general, the solution of paying the higher amount and filing an extension to figure out the situation is the correct one.

However, this may be a special case, since if your subchapter "S" election isn't effective than your "C" corporation needs to file its own tax return and pay taxes on its own net income, which is a filing in addition to your personal tax filing.

(Once you have an "S" election in effect, your corporation would simply issue you a K1 reflecting your net taxable income , which you would use in a way similar to your 1099s reflecting payments (like interest) taxable as ordinary income.)
posted by MattD at 1:34 PM on April 13, 2005

Even if your S election is effective, you still have to file a corporate tax return. It's just on a different form, and you don't pay tax at the corporate level. But the 1120S and the 1120 are both due on 3/15 for calendar year-end corporations.
posted by anapestic at 1:51 PM on April 13, 2005