Tax Year Prior to 2020: Scorp+ Sole proprietor + employed all in the same year , what forms to fill

[onlined]

I have been Employed until 9/18 of this month, on the same time i worked from June to Sep 2018 as Sole Proprietor , and transitioned to S Corp on 9/18 to the end of the year , i need help in knowing what tax forms needs to be filled out , can the S corp Status Override the sole proprietor in this case in relation to filing tax forms 

[MargaretL]

When you say "I've been employed", I'm assuming that you had a W-2 form for that time, you would report your form W-2 into TurboTax. For the Sole proprietor time frame, you would file self-employed business and expenses section, using self- employedTurboTax version AND the form K-1 from the S-Corp (I will explain below...)

The S-Corporation must file form 1120-S form, using our TurboTax Business program. Form K-1 will be generated, which you must report on your personal income tax return. You cannot really override any entity status...you should file proper income tax returns based on the dates that entities were formed. 

[newllc19]

hi I have a follow-on question or clarification.  for this scenario, where employee/self employed and S corp in same year ( I have same issue):

1) in personal turbo tax product (eg premier Self employed or home/business) do I list the S-corp as one of my "businesses" or JUST the self employed (eg sole proprietor NOT classified as SCorp) and 

2) from perspective of personal income taxes in turbo tax (premier/home&business) treat myself just as employee /shareholder of S-corp (ie input W2 and K1, but do not enter the business or any income from the Scorp in section of business profile/business income and expense) . In other words for my 1040, the income, distributions or other info from the S corp that I "get" from the S-corp in the K1 is only reflected/entered into the personal section of turbotax (the section for K-1 info, Schedule E....not the "business section " of TT that goes to Schedule C)

[VolvoGirl]

1.  No do not fill out a business for the S Corp.  Just the ones that aren't a S Corp.  Only enter the S Corp K-1 and W2 into your personal return.

2.  Isn't #2 the same as #1?

[newllc19]

pretty much, just was trying to present the 2 sides.... just trying to confirm and you have thanks!

[Critter]

The corp return MUST be completed and filed first  so the K1 can be entered on the personal return.   And you should also be taking a wage from the Scorp and filing employment tax returns so if you do not know what to do I HIGHLY recommend you seek professional assistance to file the first time correctly and timely ... the penalties for messing up are costly. 

An S-corp can make distributions, but the rules are complex.

This article has a reasonably clear discussion of what is required: 

http://www.aicpa.org/Publications/TaxAdviser/2014/January/Pages/Nitti_jan2014.aspx

Also see the following IRS discussion: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Stock-and-Debt-Basis

The IRS position is that an S-Corporation MUST pay a reasonable compensation to an officer before non-wage distributions may be made.  The reason is that they feel that non-wage distributions when no wages are paid is an avoidance of social security taxes.  From the IRS website at http://www.irs.gov/businesses/small/article/0,,id=203100,00.html :

"Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes."

The page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one judicial finding on the IRS's authority to reclassify distributions to wages subject to employment taxes.  Factors to determine reasonable compensation are given in the ruling.

The AICPA has an interesting article on this topic here: http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx

You also might want to read a lively discussion on the Tax Almanac website here: http://www.taxalmanac.org/index.php/Discussion_Forum_-_Tax_Questions .  The substance of the discussion seems to be that taking a reasonable salary is not optional and, if you took distributions with no salary, the distributions should be changed to salary with appropriate employment tax returns being filed (late, if necessary.) 

The fastest way to get audited as an S-Corporation is to not report wages to officers on page 1 of the return.

[newllc19]

Yes absolutely agree re reasonable salary, that wasn't the concern, just the mechanics of how to get the information entered in turbo tax to end up in the correct place

[rwaldrondesigns]

Can I jump in on this? I have an SCorp as a Sole proprietor and have myself set up as an employee with W2's... so I have no other shareholders, and I am self-employed, but with W2's. I purchased TurboTax Business and it said that it was the wrong software and I should use a Schedule C with TurboTax Home Business... but that one asks me for 1099's and is trying to tax my income (which was already done with my W2's!)

Hellllp!!!!

[WKins2]

Here is a breakdown to make it clear and step-by-step guidance to help clarify what returns need to be filed for what entity:

1. The S-corporation needs to file a Corporate return (1120-S). You will need to use TurboTax Business, which you can get here: https://turbotax.intuit.com/small-business-taxes/You will file the S-corporate return for the dates that the S-corporation was active. When the Corporation has been filed, a K-1 will be generated, which you will report on your personal return.

2. For the sole-proprietor, you would file the income and expenses for that using a Schedule C (which will be on your personal return). You will only file the income and expenses for the time the sole-proprietor was operational (generally until the Corporation was formed). You should use TurboTax self-employed vesion (this will help you create the Schedule C and report the K-1). Click here: https://turbotax.intuit.com/personal-taxes/online/

[VolvoGirl]

It doesn't sound like you need to do the schedule C on your personal return.  That is if you have another sole proprietor/self employed business that is not set up as a S corp.  So you don't need the Home & Business version or the Self Employed version.  

You do need to use the separate Windows Business program to do the S corp return.  

If you also get a K-1 from the S corp you will need to use the Online Premier version or any Desktop program.  All the Desktop programs have the same forms.  You do get more help and guidance in the higher versions.