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Message
Unemployment question concerning LLC taxed as an SCorp
Posted on 5/17/20 at 5:17 pm
Posted on 5/17/20 at 5:17 pm
I am a 1099 contract worker. I have created an LLC and as of January this year we filed papers to have it taxed as an SCorp.
Between January and March I made money but I have not been back to work since March.
From my understanding as an SCorp this year I will have to run Payroll and give myself a salary but I am unsure how this step works as my CPA will be assisting in this.
I have been getting unemployment since I “lost” my job but I still have my LLC open.
Will my business structure consider me technically still receiving a salary rite now by dividing all of my yearly earnings and paying me “X” per week and potentially making me at risk to have to pay all of that money back or should I be ok since I am not working rite now.
My CPA has told me that I should be ok but I am trying to get some guidance from anyone that has a better understanding of payroll that can help me understand this to make sure that I go about it correctly.
Between January and March I made money but I have not been back to work since March.
From my understanding as an SCorp this year I will have to run Payroll and give myself a salary but I am unsure how this step works as my CPA will be assisting in this.
I have been getting unemployment since I “lost” my job but I still have my LLC open.
Will my business structure consider me technically still receiving a salary rite now by dividing all of my yearly earnings and paying me “X” per week and potentially making me at risk to have to pay all of that money back or should I be ok since I am not working rite now.
My CPA has told me that I should be ok but I am trying to get some guidance from anyone that has a better understanding of payroll that can help me understand this to make sure that I go about it correctly.
3
Posted on 5/17/20 at 6:33 pm to tigersint
“Wages” lost? You get a w2?
Posted on 5/17/20 at 6:41 pm to tigersint
quote:
Will my business structure consider me technically still receiving a salary rite now
no because it will show on your state and fed quarterly papers. see below
if you plan on going back to work. pro rate the salary for last 3 quarters. pay state and fed quarterly on state forms and fed forms. you can adjust your salary anytime. The last quarter you can make changes if it is hard to estimate income and salary.you already have to list what you made each month on each quarterly return. So they will see what months you are out of work or had lesser work/income. You are overthinking the paycheck stuff. just make damn sure your W2 you make at end of year matches those quarterly payments you made on payroll tax, fed and state income tax. of course as you know while you are paying the 15.3% payroll tax on fed forms as the employer you will only show the employee 7.65% on W2 for combined SS and medicare tax.
You can make ZERO dollars and you still have to file fed and state quarterly papers so they know. Just like if you do not do annual report the SOS will declare business inactive after a few years.
i hope i understood your question.
also, do not forget your FUTA ans SUTA taxes also!
This post was edited on 5/17/20 at 7:19 pm
Posted on 5/17/20 at 6:47 pm to doya2
quote:
You get a w2?
he has to make his own W2 now since he is taxed as a S-corp and is an employee of his own company and send a copy to SSA and state. he can do one on the SSA website.
This post was edited on 5/17/20 at 6:51 pm
Posted on 5/17/20 at 7:50 pm to Fat Bastard
Thanks Fat Bastard. I have a bit better of an understanding now
Hopefully I will get to work again this year. I am unsure as I work in the oilfield and the near future does not look too great.
My CPA has told me that we will not file any quarterly payroll returns until the end of this year because we have not filed taxes as an S Corp yet and don't have to until then or something like that so im guessing what you have said should still apply to my situation?
I am sure that he knows what he is doing but I would like to understand what I got myself into with this SCorp. I honestly cant wait to just denounce SCorp Election or dissolve the LLC alltogether. I believe it is too late this year but this will be the 2nd year in a row that I am having to pay over 2K to get my taxes done and it not benefiting me due to oil volatility.
Also my case may be slightly different. When I applied for unemployment I was actually an employee at my company for half of last year but they had to move me to contract work. So I believe that my unemployment benefits now are being drawn from that employment as when I filled out my form that information came up and it said “if you are self employed you do not have to include wages from this” on the website when filling out the information.”
Hopefully I will get to work again this year. I am unsure as I work in the oilfield and the near future does not look too great.
My CPA has told me that we will not file any quarterly payroll returns until the end of this year because we have not filed taxes as an S Corp yet and don't have to until then or something like that so im guessing what you have said should still apply to my situation?
I am sure that he knows what he is doing but I would like to understand what I got myself into with this SCorp. I honestly cant wait to just denounce SCorp Election or dissolve the LLC alltogether. I believe it is too late this year but this will be the 2nd year in a row that I am having to pay over 2K to get my taxes done and it not benefiting me due to oil volatility.
Also my case may be slightly different. When I applied for unemployment I was actually an employee at my company for half of last year but they had to move me to contract work. So I believe that my unemployment benefits now are being drawn from that employment as when I filled out my form that information came up and it said “if you are self employed you do not have to include wages from this” on the website when filling out the information.”
This post was edited on 5/17/20 at 7:57 pm
Posted on 5/17/20 at 9:07 pm to tigersint
quote:
My CPA has told me that we will not file any quarterly payroll returns until the end of this year because we have not filed taxes as an S Corp yet and don't have to until then or something like that so im guessing what you have said should still apply to my situation?
If you get back to work and still file and pay before tax day (3-15 for us) they can still hit you with an underpayment penalty for not paying quarterly. My CPA is very strict about this. If you are registered with state you should get tax forms in mail for quarterly payments. Fed forms are online. I'd question your CPA about this. If they(state) send them to you, show them to him or let him know.
quote:
I honestly cant wait to just denounce SCorp Election or dissolve the LLC alltogether. I believe it is too late this year but this will be the 2nd year in a row that I am having to pay over 2K to get my taxes done and it not benefiting me due to oil volatility.
wow. mine are only a quarter of that. they are tax deductible expenses though! but if you are not making enough to deem it worth it, do what you need to do. I like my corporation. it is a tax life saver. you not only just save tons of self employment tax you would have as a sole proprietor on all income, you have more business deductions on the K1 company dividend/distribution side. Thus paying less income taxes on K1 distributions. Also the K1 income pays no payroll tax like the employee side.
Posted on 5/17/20 at 9:46 pm to Fat Bastard
Thanks again!
Do you mind sending me an email with who you use for your tax filing services? I do like my CPA but as I said it can be very costly and this downturn It would be nice to save every penny that I can.
Wcasoccer21@gmail.com
Do you mind sending me an email with who you use for your tax filing services? I do like my CPA but as I said it can be very costly and this downturn It would be nice to save every penny that I can.
Wcasoccer21@gmail.com
Posted on 5/18/20 at 8:35 am to tigersint
wait, are you ONLY using the CPA for year end returns? or are you paying that price for quarterly help and other things?
where do you live?
where do you live?
Posted on 5/18/20 at 10:15 am to Fat Bastard
I have only paid him so far for year end returns. He helps with payroll as well. Last year i think it was actually cheeper than it will be this year since I had told him to hold off on the Scorp Election but I have been quoted 2-2.5 K for my 2020 filing which seems to me a bit overpriced.
I live in Lafayette.
I live in Lafayette.
This post was edited on 5/18/20 at 10:22 am
Posted on 5/18/20 at 3:02 pm to tigersint
quote:
I have only paid him so far for year end returns. He helps with payroll as well. Last year i think it was actually cheeper than it will be this year since I had told him to hold off on the Scorp Election but I have been quoted 2-2.5 K for my 2020 filing which seems to me a bit overpriced.
Does the 2K include all the accounting write-up needed to create books for an S Corp return? Or are you sending him a clean quickbooks or something similar?
A lot of my clients pay far more for me to create/clean their books, then they pay for the actual tax return... which is why we are proactive about telling them, hey, you can do some of this yourself, or go find a bookkeeper and pay them $30 an hour, etc...
As far as an S Corp, if you work in the oilfield and get a 1099 as a contractor, it's kind of silly to be an S Corp, you can deduct your expenses either way (S Corp or on Sch C). You do save some payroll tax as an S corp, but if you are the only employee and it's all your personal service, it's kind of a sham and you would likely get killed on an audit. Also, as you see, there is an added cost to be an S corp, so the savings have to be worth it.
Posted on 5/18/20 at 7:17 pm to LSUFanHouston
It’s not a sham at all. A ton of S CORPS are one man shows. Look it up. Perfectly legal. If he filed his stuff right he will be fine. You act as if the poor guy is doing illegal acts. Lmao. It’s not silly at all if you get 1099-misc at end of year paid to a s- Corp by filling out a W9. This is done all the time. Especially in O&G. Especially if you want tax savings by being an employee of your company. That is how some things work in certain industries. All about legal tax structure. Why the frick should he be forced to pay all that self employment tax as only an independent contractor only? Way more business expense deductions with s Corp. I’m sure glad you are not my CPA. YOU should know better.
This post was edited on 5/18/20 at 8:32 pm
Posted on 5/18/20 at 8:00 pm to tigersint
I’ll email you tomm from work. Don’t let anything in the response from other guy scare you into thinking what you’re doing is illegal or cannot be done.
Posted on 5/18/20 at 8:51 pm to Fat Bastard
Thanks for the assistance guys!
I have done some of my research on the ins and outs of how my SCorp election works from a tax saving perspective but with the unemployment now thrown into the equation I was unsure with how this will be reflected.
In short I am able to have some of my income given to me as a dividend (which will save SE Taxes) and the remainder will be given as a reasonable salary for my work done. My CPA should be knowledgeable as to what paperwork will need to be filed and what percentage of this will satisfy the "reasonable amount" stipulation.
My payroll should not be super complex (my business just bring in a check every two weeks based on how many days of work were completed) and my CPA said that they will take care of this for me and it should not add much more to the cost and has been included in my quote for 2020.
My only concerns now have come up with how the payroll and accounting side of this all works to ensure that im not still considered as receiving a salary each week even though my one man company is not bringing in any more money rite now.
I also was kind of wondering what prices can be expected to be paid for these services as mine do seem high but at the same time my CPA also seems to be very knowledgeable on the subject. It would be all good if I were able to work the entire year as this would have indeed saved me money, but unfortunately there comes an amount where the money that goes towards paying your CPA overcomes the amount that you will save in SE taxes and that is what the outlook for this year currently looks like for me.
I have done some of my research on the ins and outs of how my SCorp election works from a tax saving perspective but with the unemployment now thrown into the equation I was unsure with how this will be reflected.
In short I am able to have some of my income given to me as a dividend (which will save SE Taxes) and the remainder will be given as a reasonable salary for my work done. My CPA should be knowledgeable as to what paperwork will need to be filed and what percentage of this will satisfy the "reasonable amount" stipulation.
My payroll should not be super complex (my business just bring in a check every two weeks based on how many days of work were completed) and my CPA said that they will take care of this for me and it should not add much more to the cost and has been included in my quote for 2020.
My only concerns now have come up with how the payroll and accounting side of this all works to ensure that im not still considered as receiving a salary each week even though my one man company is not bringing in any more money rite now.
I also was kind of wondering what prices can be expected to be paid for these services as mine do seem high but at the same time my CPA also seems to be very knowledgeable on the subject. It would be all good if I were able to work the entire year as this would have indeed saved me money, but unfortunately there comes an amount where the money that goes towards paying your CPA overcomes the amount that you will save in SE taxes and that is what the outlook for this year currently looks like for me.
This post was edited on 5/18/20 at 8:57 pm
Posted on 5/18/20 at 9:20 pm to Fat Bastard
From your posts I know you are rather aggressive, which is fine.
The problem is when contractors net $100K and pay themselves a salary of 20K and draws of 80K.
What can you tell me about reasonable salary? That’s where the one man service shops get in trouble,
The fact it’s done “all the time” is due to a lack of enforcement, not playing by the rules.
I’ve seen maybe 2 percent blow up. So yes a low percentage, but when it does, it is ugly.
My job is to keep my clients in the financial place that minimizes their tax burden but can survive an audit. I’ve fired clients for being too aggressive and clients have fired me for not being aggressive enough. So I am probably not a good match for you as a CPA, because I DO know better =)
Odds are you and the OP will never get audited. But if you do and you aren’t paying yourself a reasonable salary, prepare thy anus.
Also, business deductions are the same, There are no deductions available to S Corp that isn’t available to Schedule C. if your CPA doesn’t know that, maybe you need to pay more for better advice!!
The problem is when contractors net $100K and pay themselves a salary of 20K and draws of 80K.
What can you tell me about reasonable salary? That’s where the one man service shops get in trouble,
The fact it’s done “all the time” is due to a lack of enforcement, not playing by the rules.
I’ve seen maybe 2 percent blow up. So yes a low percentage, but when it does, it is ugly.
My job is to keep my clients in the financial place that minimizes their tax burden but can survive an audit. I’ve fired clients for being too aggressive and clients have fired me for not being aggressive enough. So I am probably not a good match for you as a CPA, because I DO know better =)
Odds are you and the OP will never get audited. But if you do and you aren’t paying yourself a reasonable salary, prepare thy anus.
Also, business deductions are the same, There are no deductions available to S Corp that isn’t available to Schedule C. if your CPA doesn’t know that, maybe you need to pay more for better advice!!
This post was edited on 5/18/20 at 9:22 pm
Posted on 5/18/20 at 9:50 pm to LSUFanHouston
Thank you for your insight as well LSUFanHouston. I really appreciate the feedback from everyone in this thread and will definitely bring up all of these things when I sit down with my CPA.
This year what I have currently made is not very significant and it will not benefit me all that much to give myself dividend and reasonable salary. This will be discussed with my CPA. From what I have seen online it seems that the typical "reasonable" upon amount is to have 60+% that goes toward a salary and you should be Ok. I am still learning about all of this and the pros/cons/risks associated with it.
This board is great for learning and you guys are all very helpful.
This year what I have currently made is not very significant and it will not benefit me all that much to give myself dividend and reasonable salary. This will be discussed with my CPA. From what I have seen online it seems that the typical "reasonable" upon amount is to have 60+% that goes toward a salary and you should be Ok. I am still learning about all of this and the pros/cons/risks associated with it.
This board is great for learning and you guys are all very helpful.
This post was edited on 5/18/20 at 9:56 pm
Posted on 5/19/20 at 8:22 am to tigersint
quote:
From what I have seen online it seems that the typical "reasonable" upon amount is to have 60+% that goes toward a salary and you should be Ok.
It's supposed to be what you would be paid if you were simply an "employee" somewhere else doing "employee" things.
As an owner-employee, you wear two hats. And you are compensated as such. For the amounts that represent your employee-like work, that should be salary. For the amounts that represent your return on your investment / ownership, your management over the work of others (your employee leverage), as well as your "compensation" for the risk of being a business owner, those should be draws and not subject to payroll taxes.
The problem arises with a one-man "services" shop, especially professional services. Compare yourself as a one-man shop to you doing the same work, but being employed by a company. Your hourly rate will probably be higher on your own, and you are already getting to deduct all of your overhead/expenses. You don't have any employee leverage. You did take the risk of ownership, and there should be some reward for that, no doubt.
But the amount of reasonable salary would probably be determined to be quite high. You will see some payroll tax savings on your draws, which should be relatively a smaller part of your total pay. You then have to compare the tax savings with the additional costs of compliance (additional cost for an S corp return, unemployment, costs of running payroll, etc.) All of these can of course be managed. You just have to run the numbers for yourself.
Posted on 5/19/20 at 8:52 am to tigersint
YGM
i explained some things and gave you some links i won't post here.
i explained some things and gave you some links i won't post here.
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