Q:

Subject:  C Corp questions

 

Hi,

 

I found your website while researching the following:

 

LLC filing as C-corp question

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Could you please give me some feedback on the best way to handle the following?

1. 2005 1120 was filed showing consulting fees as an expense. The consulting fees were actually paid to the sole shareholder. There is no payroll set up for the corp. How should this be handled on the shareholders return? Any changes for the corp return?

2. Sole shareholder personally owns the truck which is used 100% for this C-Corp. Mileage has previously been claimed on this vehicle in a prior year (before corp) as unreimbursed business expense. How would it be handled now that it is totally used for corp business? Could the C-corp lease the vehicle from him?

3. Home-Office deduction for C-corp? Would it be best to lease the office space to the corp?

Any suggestions are greatly appreciated!

A:

There are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.  There are pros and cons to each of the various options you mentioned, as well as dozens you didn't.

You will need to work directly with an experienced tax pro who can analyze your unique circumstances. In fact, you were crazy to set up your corp without the advice of a qualified tax pro because s/he could have steered you in the best direction for some things that cannot be changed, such as the fiscal year.

I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time. 

Unfortunately, we don't have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.

If you haven't already done so, you should check out my tips on how to select the right tax preparer for you at.

In regard to the consulting payments made by your corporation to you, you need to report them on Schedule C of your 1040, which, after any related expenses you may have paid personally (+ home office, etc), will be subject to the 15.3% self employment tax.  A good tax advisor can help you find other ways to draw money out of your corp that aren't subject to SE tax.

Amending things to reclassify those payments as W-2 wages would be a very costly mistake, subjecting you and your corp to a lot of penalties with both IRS and your state tax agency; so it would be most prudent to continue with the way those payments have already been classified, as non-employee compensation (1099-MISC) consulting.

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/26/2006 12:45:00 PM Send this post: