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UserTax
New Member

Switched to LLC S-Corp mid year. How to file taxes

I was operating business as a sole proprietorship since the beginning of the year, then in April/May established an LLC then mailed election form to IRS to be taxed as an S-Corp. I use PayPal for my business. it has my Social security number where I get the 1099k tax document the end of the year. My confusion is I added EIN to my PayPal account to start operating as a business in July and when I asked PayPal they said I would only get one 1099k with my EIN or social security number. I won't get 2 separate ones, one with social security and then the other one when I started operating as a business and added EIN.

I operated as sole proprietorship jan to June . then in July I added EIN to my PayPal and got on payroll and totally separating expenses business and personal. I established the LLC in April/May. When it comes to taxes do I need to separate the time that I was operating as a sole proprietorship(Jan to June) from the time I added EIN to my PayPal in July and started operating as business given the fact that PayPal gone give me one 1099k not 2. also how do I know if IRS accepted my Election form as its been over 4 months and haven't received any confirmation. Thx

3 Replies
Mike9241
Level 15

Switched to LLC S-Corp mid year. How to file taxes

what's important is the effective date of the S-Corp election. before that date you report Schedule C (regardless of sole proprietorship or single-member LLC) on and after that date on the S-corp. Who was the EIN issued to your LLC or you personally?

the S-Corp needs its own EIN you can not use the EIN f it was issued to you personally.  the Corp' EIN would appear on the IRS S-Corp approval letter  - CP261 Notice. without it you don't know if your s-corp status was approved or the effective date.

 

 

 

Carl
Level 15

Switched to LLC S-Corp mid year. How to file taxes

You will basically be filing a final SCH C with a closing date of at least one day before the S-Corp became active. Any and all assets, inventory and vehicles are removed from the SCH C business "for personal use". For the SCH C business to be closed, it must have no assets, no inventory, and no vehicle use - even if that vehicle use is less than 100% business use.

When starting the firsst 1120-S for the S-Corp, then opening date of the business will be the same exact date you opened the SCH C business. Doesn't matter if it was years ago either. Then add you assets with the same exact in-service date you used on the SCH C.

Now understand these dates, as they matter big time. You get them wrong, and darn near everything will be screwed up - especially depreciation on business assets.

Date the business opened - This is the date the business originally opened exactly as shown on the very first SCH C that you filed - even if it was years ago.

Date the business incorporated - At least one day after the SCH C business was closed and ceased to exist.

Be aware that as an S-Corp, you are required by law to take a minimum draw from the business every year. You are also required to make quarterly reports to the state the S-Corp is registered in. This state reporting has nothing to do with taxes.

Finally, the 1120-S corporate return is due by March 15 of every year. Late fees for filing the corporate return late are presently set at $205 per month, per owner. So while your personal 1040 return may have a filing deadline of Apr 15, the filing deadline for the corporate return is March 15.   Be aware of that, as filing late can and will get costly.

 

tagteam
Level 15

Switched to LLC S-Corp mid year. How to file taxes


@Carl wrote:

Be aware that as an S-Corp, you are required by law to take a minimum draw from the business every year. You are also required to make quarterly reports to the state the S-Corp is registered in. 


States typically require annual reports but quarterly reports (on Form 941) must be filed for those who pay salaries/wages and withhold Social Security and Medicare taxes and, of course, S corporations must pay their shareholders reasonable salaries for the services they perform for the corporation.

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