There is no end in sight of the people who are quick to set up corporations and LLCs, without the foggiest idea of what those entail, just because someone told them that was the cool thing to do.

Q:

Subject: Poor me

Hi,

Great tax info.  Now my request for the free advice.

I set -up a C-Corp March 23, March 2004.  We have approx. $30,000.00 in deductions (or at least I thought so).  However, since we were just starting the biz, we have not sold anything...or made a profit.

Our tax person says we are out of luck as far as the deductions go (since we are not an S Corp) and we must pay the $800.00 annual fee regardless. We have not made any sales, since we are still forming.

Anything good you can suggest or advise?

 

Thanks,

A:

 If any of this surprises you, it means that you and your tax advisor didn't adequately discuss the details of owning a corporation in the PRC before you set it up. 

From the moment your corp is chartered, until all of the proper papers have been filed to dissolve it, it is required to pay the $800 per year minimum tax, whether any actual business is conducted or not.  That is the way it has always been.

The $30,000 of deductions in your C corp aren't lost; so there's no real reason to be upset . It's true that you can't deduct them on your 1040.  However, they will create an NOL (net operating loss) that can be carried over into future years, offsetting the corporation's income from those years.

If there won't be any corp income for a few more years, you may want to consider setting up a Schedule C on your 1040 and paying the expenses with your personal money so that you can obtain some tax benefit from them sooner.

I'm not sure what you are looking for from me; but it sounds like you need to work more closely with your tax advisor.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/29/2005 06:52:00 PM Send this post: