- January 23rd, 2013
- John Dillard
- IRS Representation, Back Taxes, Offer in Compromise, IRS Tax Problems, Tax Advocacy
John Dillard CPA of His CPA PC has received notice today that the IRS has issued a check to refund one of his Atlanta based clients over $81,000. “Though it took a bit longer than expected,” the client was able to deposit the monies back into their accounts and to gain a refund from the IRS which ultimately resulted in a tax savings to a client of approximately $62,000 in tax savings dollars.
The IRS has long had a process where a company who was an LLC or a C Corporation and who desires to be an S Corporation to make an election to do so. This process is documented and performed by the filing of IRS Form 2553, which is the Election to be a Small Business Corporation. To file for S Corporation status the easy way, this election should be filed within 75 days of incorporation date (if an new company) or within seventy-five days of the tax year to which it relates. S Corporations status allows for the legal avoidance of “double taxation” as C Corporations have to pay taxes first at the corporate level on any retained profits and then again at the shareholder level when monies are paid out to owners in either the form of dividends or salaries. LLC’s continue to be responsible to pay FICA/Medicaid taxes on all of their net earnings out of the business, whereas an S Corporation are only required to pay these FICA/Medicaid taxes on salaries paid out to all employees, including active employee owners. Care should be exercised as tax law requires that all active employee owners take a fair and reasonable salary given position and profit.
If you fail to make the seventy-five day time requirement the IRS has long had a process where one you can formally appeal requesting the S Corporation date you prefer. Care should be taken when performing this procedure and working with a CPA is your best bet to ensure that your S Election request is granted. Talking with the IRS about any substantive tax issue that it is widely recommended that you sign a Power of Attorney, which if Form 2848, to have your CPA talk to the IRS on your behalf, which will dramatically and exponentially ensure a higher success rate than going it alone.
To read more about how LLC’s and S Corporations are taxed see http://www.hiscpa.com/article6.html Carefully considering the tax effects of your entity choice is essential to getting your business off on the right foot. Being careful to avoid, if at all possible, the double taxation of Georgia C Corporations and then selecting the right entity for your business from both a tax and legal perspective is critical.
www.HisCPA.com A Christian CPA Firm in Duluth GA Proudly Offering Corporate and Personal Income Tax Returns, Offer in Compromise, Tax Advocacy, Tax Mitigation and Tax Compliance, Back Taxes, IRS Representation, IRS Appeals, IRS Collections, IRS Installment Plans & IRS Wage Levies