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I am brand new here. I am a tax preparer and I just registered to this site looking for some help filing a client's S-Corp taxes. First of all, the entire situation is quite a mess, but I'm going to try and ask my question without getting too in-depth with the whole situation.
My client needs to go back and file every single 1120-S and 1040 starting in 2007, the first year of his S-Corp. He is the single shareholder and he paid very, very low wages to himself. A CPA gave me the advice of amending the last quarter 941, 940, and W-2/W-3 of every year to show higher wages. But for many of these years, we are past the deadline of doing so.
These are the only options I can think of...
Option #1 - File the returns with the wages shows on his W-2's and risk the IRS turning 100% of the distributions into wages.
Option #2 - File a Schedule C with his 1040 with additional wages so that he can pay the self-employment tax.
I've been searching online for days and have found both of these options have been done, but the advice is to just do it the one year, then get the client back on track . That's not an option here because I have to file years 2007-2013. Whatever I choose to do will have to be done for at least years 2007-2010. Starting in 2011, I could go back and amend the forms like the CPA suggested I do.
On the two other forums I posted this on, I have a total of 5 people who have all given different opinions. So obviously, this isn't a typical issue. My job as a "tax preparer" is to help people report their income and end with the lowest tax liability that they are legal entitled.
If a supposedly educated enrolled agent/tax preparer can screw up 6 years of someone's tax reporting to the tune of hundreds of thousands of dollars in taxes, penalties, and interest, then I'd like to make sure I'm doing everything I can to help them.
Obviously the owner of an S-Corp is not supposed to report their income on a Schedule C. But I've spent weeks reading every online article and forum post I can on this issue and that is what people are doing to correct this issue 50% of the time. The IRS won't like it, but at least the taxes will be paid. The other alternative is to report an obscenely low amount of wages, which doesn't sound very responsible either. I didn't create the problem and there is no way to fix it. But thanks for all your help, tax "doctor".
FYI if anyone else comes across this post... after talking to several people, I decided how I'm going to handle this and am proceeding with the filings. If you have a similar situation you want to talk about, you can send me a message, but I will not be following this thread. Thank you.
Wow. If my "tax preparer" needs to go to a anonymous forum to figure out how to handle the filings I hope I wake up and everything is just a bad dream.
There is always a "fix" but that isn't something found on forums where anyone can say anything.
This is the reason you always shell out the cash for a CPA to do your taxes, because your tax preparer that works on the cheap has to go to public forums to figure out how to do your taxes. Does this business owner really think the OP will show up when he gets audited and defend their decisions? lololol
Just to answer the question: DH's CPA advised him to report as wages at least the salary on which FICA is due. The remainder of his compensation can be paid as a distribution.
For him, that results in a salary that is typical for his profession. If a typical salary is much higher, it might be wise to report more as salary and less as distribution.
This is the reason you always shell out the cash for a CPA to do your taxes, because your tax preparer that works on the cheap has to go to public forums to figure out how to do your taxes. Does this business owner really think the OP will show up when he gets audited and defend their decisions? lololol
Why?
CPAs don't know crap about taxes necessarily. Go to an EA with some experience.
Honestly, this issue is more for a tax attorney, however. Anything you do opens up to liability since the client hasn't been filing taxes and is a tax evader. There's no limit on fraud so the IRS could potential go way back and nail the guy to a wall. That's attorney territory. EAs can prepare your taxes properly, but they can't necessarily tell you how to undue seven years of fraudulent reporting and failing to file taxes.
CPAs don't know crap about taxes necessarily. Go to an EA with some experience.
Honestly, this issue is more for a tax attorney, however. Anything you do opens up to liability since the client hasn't been filing taxes and is a tax evader. There's no limit on fraud so the IRS could potential go way back and nail the guy to a wall. That's attorney territory. EAs can prepare your taxes properly, but they can't necessarily tell you how to undue seven years of fraudulent reporting and failing to file taxes.
SophieTax says it was an EA who got the client into this mess. I wonder why it is not the EA who is helping to get them out.
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