LLC taxed as S-CORP and Personal taxes

[janetteamber]

Hi, my question is for 2020 tax filing.
We are switching our company from a sole proprietor to a Multi-Member (husband & wife), LLC Taxed as an S-CORP, January 2020. 

(Multi-member or single member is still being decided, but we are leaning towards multi-member if that makes a difference)

What turbo tax products will I need for filing? Will I need one for the LLC & one for our personal (we file married - jointly)? If so, which one/ones? Also, will Quickbooks self-employed be able to connect to the correct Turbo Tax products or do I need a different Quickbooks?

Thank you!!

[Anonymous]

before switching, consult a tax pro.     As an S-Corp,  active owners are supposed to take a salary.   you might get away with not taking salaries for some years, but sooner or later the IRS will make an inquiry and at that point the pain will begin. 

here's a court case 

If the IRS concludes that an S corporation owner has attempted to evade payroll taxes by disguising employee salary as corporate distributions, it can recharacterize the distributions as salary and require payment of employment taxes and penalties which can include payroll tax penalties of up to 100% plus negligence penalties. The IRS will do so if it concludes that the corporation paid the employee unreasonably low compensation for his or her services. For example, a CPA who incorporated his practice took a $24,000 annual salary from his S corporation and received $220,000 in dividends which were free of employment taxes. The IRS said that his salary was unreasonably low and that $175,000 of the dividends should be treated as wages subject to employment taxes. The court upheld the IRS’s power to recharacterize the dividends as wages subject to employment tax. (Watson v. United States, (DC IA 05/27/2010) 105 AFTR 2d.

due to the QBI deduction, (IRC section  199A) which could be reduced if S-Corp profit is recharacterized as salary,  it likely taxable income on your 1040 will increase,  resulting in even more taxes, penalties an interest.  

outside of tax laws , there the question of workmen's compensation insurance.   in my state, employees, even owner employees must be covered by WC insurance and there are penalties for failure to have it 

if you have health insurance, there are rules that must be followed if you want to get a 1040 page 1 deduction ( adjusted gross income is reduced) vs an itemized deduction

the pro can even look at at your proposed tax structure and advise if it might make more sense just to have an LLC -  an LLC does not pay salaries to its owners, so there can't be payroll tax penalties as long as there are no employees.   additional advice might deal with having or not having your wife as a member.  a multimember LLC must file a partnership tax return.   the downside, all of the profits may be subject to self employment tax and the QBI deduction is affected   

[Carl]

First understand that when it comes to ***TAXES*** (AND ONLY TAXES) there is absolutely no difference between an S-Corp and an LLC that is "treated like an S-Corp". So when it comes to taxes (And I stress, *ONLY* taxes) you will have an S-Corp. Period.

I'm assuming the conversion will happen New Year's Eve. If so, that makes things rather simple.

Basically,  you will close/disolve the sole proprietorship on Dec 31, 2019.

If your sole proprietorship has assets, then you will show all of those assets as "removed for personal use" on Dec 31, 2019.

If your sole proprietorship has inventory, then you will show all remaining inventory as "removed for personal use" on Dec 31, 2019.

If your sole proprietorship claims *ANY* vehicle use, then you must show that you "stopped using this vehicle in the business in 2019" with a last day of business use date of Dec 31, 2019.

This will basically dissolve the sole proprietorship on Dec 31, 2019.

You will not deal with the S-Corp taxes until you file your 2020 taxes in 2021. But it is imperative that upon completing your 2019 taxes showing the dessolution of the sole proprietorship, that you print *EVERYTHING*. Not just the "forms required for filing" or the "forms for your records". You need to print absolutely everything to include all calculation forms and worksheets. I guarantee you that if you don't, then it will not be possible to do your first IRS Form 1120-S Corporate tax return correctly.

For 2019, you do *NOT* need to purchase TurboTax Business (different from Home & Business) since your S-Corp will not exist until 2020.

Multi-member or single member is still being decided,

If both you and your spouse will be owners of the S-Corp, then there's nothing to decide. It will be a multi-member LLC.

Personally, I don't understand why you don't just create an S-Corp from the get-go and bypass all that LLC stuff. When you file the 2553 to treat your LLC "like an S-Corp", that is for *tax* *perposes* *only* and nothing else. So if your business is sued, that has nothing to do with taxes and the courts will not see your business as an S-Corp. They will see your business as a Multi-member LLC/Partnership where the owner(s) is/are personally liable. When one files the IRS Form 2553 to have their LLC "treated like an S-Corp" that takes on several connotations.

1) The S-Corp treatment is for "tax" "purposes" "only" and nothing else.

2) The business *MUST* follow all the laws, rules and regulations at both the federal and state level that apply to S-Corps.

3) One of those laws is that all owners of a S_Corp are required by law to take a required minimum distribution from the S-Corp every year, and you will pay tax on that distribution like it or not.

4) S-Corp tax returns are due March 15th each year. With an extension it is due Sept 15th. Late filing penalties are steep. It's $200 per owner for each and every month the return is late.

Now that's just the tip of the iceberg. So you may want to consult a professional in your state on this. There are other requirements of an S-Corp that can (and will) cost you dearly if not met or done incorrectly.

Overall, it would make more since to just close the sole proprietorship effecting Dec 31, 2019 and open an actual S-Corp on Jan 1, 2020.

[VolvoGirl]

To use Turbo Tax.....

If you need to file a separate 1120 S corp or 1065 Partnership return you will need to buy Turbo Tax Business in addition to using a personal return program (either Online or Desktop CD/Download program).

  Turbo Tax Business  is not available to do online or on a Mac.  You can only buy the Window's Desktop program.  You can have both TT Business and TT Home & Business (or any personal version) installed on  your computer at the same time.  You will get a schedule K-1 (or a W2) from the business return to manually enter into your personal 1040 return.

No, you can not use the QuickBooks Self Employed version to import to Turbo Tax Business.  You will need a different version of QuickBooks.

[VolvoGirl]

Regarding QuickBooks,  

Here is the support article to import Quickbooks into Turbo Tax Business.  TT Business will only import from Quickbooks CD/Download Software versions. TurboTax Business will not import from QuickBooks Online.  Turbo Tax Business and QuickBooks must also be on the same computer.

https://ttlc.intuit.com/community/entering-importing/help/how-do-i-import-quickbooks-data-into-turbo...