LLC with S-corp election for federal tax purpose (sued, 2014, s-corps)

[ylchien]

Hi,

I am working on my business tax return for 2016. I am a member of multi-member LLC. I elected s-corp for tax treatment purpose for tax year 2016. I just realized that the LLC must provide me the member a w-2. But my LLC did not generate any paycheck for me in 2016. And there is loss in 2016.

My question is if I can file the business tax return as I did not elect s-corp tax treatment, since I do not know how I can generate the paycheck and w-2 for 2016 as this moment.

Thanks for your help.

[Bradmilano]

An S corporation files a tax return and passes out the income or loss to its shareholders in proportion to their interest via a K-1. Active shareholders should also be paid a salary through the company which represents reasonable compensation for their service. If there was no payroll run for 2016 then there is no W-2. The audit exposure is low because the IRS is more concerned about SCorps with no W-2 and profits at year end because the active shareholders would be escaping self employment taxes.

Going forward put yourself and other active shareholders on payroll.

The election to be treated as an s Corp has no bearing on whether you are issued a paycheck.

[NYCresident2014]

Why did you elect S-Corp status for an LLC? LLCs with more than one owner are already taxed as flow-through entities for US federal purposes, and have MUCH easier compliance than S-Corps.

To your question, though, you don't get a paycheck if you're not an employee. It really sounds like your business should spend the money on an hour or two of a CPA's time to make sure you guys are doing everything correctly (and efficiently).

[TaxPhd]

Originally Posted by NYCresident2014

Why did you elect S-Corp status for an LLC? LLCs with more than one owner are already taxed as flow-through entities for US federal purposes, and have MUCH easier compliance than S-Corps.

To your question, though, you don't get a paycheck if you're not an employee. It really sounds like your business should spend the money on an hour or two of a CPA's time to make sure you guys are doing everything correctly (and efficiently).

Biggest reason is generally to save on employment taxes.