Archive for John Stancil

10 IRS Facts On Filing An Amended Return (+ 3)

Have you ever filed your tax return only to later realize that it was not complete? You forgot to include some income, you left off a deduction, you did something incorrect on the return. Sometimes you may want to file now, then file later when that last document comes in. After all, you’re waiting for that fat refund. It’s a situation many of us have found ourselves in. The solution is to file an Amended Return, Form 1040X. The IRS lists “Ten Facts on Filing an Amended Tax Return.” They are listed here:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper.

2. You should consider filing an amended tax return if there is a change in your filing Read More

Written by | Posted in Individual • IRS

Disproportionate Distributions In An S Corporation

Owners of an S Corporation needs to carefully monitor distributions to shareholders to be certain that there are no disproportionate distributions. Failure to make distributions in proportion to ownership interests can void the S Corporation election.

Distributions to shareholders must be made in proportion to the ownership interests of the shareholders or a disproportionate distribution has occurred. For example, if an S Corporation has three shareholders owning 50%, 35% and 15% of the corporate stock, all distributions to shareholders should be in this ratio. These are distributions of profits, if the shareholders are also employees, amounts paid to them in salary are not distributions for this purpose. Read More

Written by | Posted in Corporate

Compensation And Benefits For An S Corporation Shareholder/Employee

A major issue for most S corporations is the matter of shareholder compensation and benefits. One of the advantages of an S corporation is the ability to avoid self-employment taxes on the earnings of the corporation. However, payroll taxes cannot be totally avoided as the IRS requires that an employee/shareholder be paid a “reasonable” salary. A related issue is benefits made available to the shareholder/employee. There are restrictions on benefits that shareholders can receive. These shareholders often do not realize (or choose to ignore) that the corporation cannot be treated like a gift bag in which you reach in and give themselves personal benefits.

A shareholder/employee is required by law to receive a “reasonable” salary from the corporation. The IRS does not define reasonable but takes into consideration several Read More

Written by | Posted in Corporate • Individual

S Corporation Pitfalls to Avoid

When a business operates as a sole proprietorship or as a partnership, there are few legal and tax regulations that must be followed. However, if that business converts to a corporation, a number of things change and the owner(s) must adhere to these new expectations or run the risk of having the corporate form of organization legally disregarded. When a corporation is legally disregarded, the law treats it as though it does not exist. In a worst-case scenario, this means that the limited liability protection provided by a corporation is lost, and the owners can be held liable for the debts and acts of the corporation.

Keep in mind that a corporation, whether an S corporation or a C corporation, is a legal entity separate and distinct from its owners. This is unlike the situation with a Read More

Written by | Posted in Corporate • Partnership

IRS Now Accepting Simplified Form 1023-EZ For Tax Exempts

Not-for-profit organizations who wanted to be IRS-exempt have long been faced with completing Form 1023. This form is an arduous 26 pages long and the IRS estimates are that it would take as long as 16 hours just to complete the form after spending up to 7 hours learning about the form. Time spent in record keeping is estimated to be up to 100 hours. Obviously, this is not a task for the faint of heart and is a major hurdle to an organization wishing to become tax exempt. In addition, the IRS spends an inordinate amount of time processing these forms and has a backlog of 60,000 applications, which is about a nine-month backlog. Currently, the IRS states that it takes up to 21 days just to acknowledge the application.

This step is necessary for an organization to be qualified as a 501(c)(3) not-for-profit Read More

Written by | Posted in Non-Profit Tax

A Look At The IRS Annual Filing Season Program

The IRS has issued complete rules for its new voluntary Annual Filing Season Program and one must wonder “Why?” What is the IRS hoping to accomplish through this initiative and what use is this program?

It is well-known that the program is a reaction to the IRS loss in the Loving case, which struck down the mandatory preparer registration program. Many preparers jumped on the bandwagon and sought the designation “RTRP,” which was the certification provided by that program. With the demise of the program, the designation is also dead in the water. The IRS has stated that it does not recognize the RTRP designation, but will not comment on whether a professional can use the designation. They have stated that there is nothing to stop RTRP’s from displaying their certificates. Read More

Written by | Posted in Individual • Tax Education

Knowing Your S-Corporation Basis

Knowing one’s cost basis in an S Corporation is a vital issue for most owners of S corporations. However, to many such shareholders, basis is not understood and not known. Part of the confusion arises from the fact that S Corporations, LLC’s, and partnerships face two different basis numbers – inside basis and outside basis. Both are important, but the outside basis is more likely to become an issue annually for the shareholder. Shareholders may not deduct losses from the corporation in excess of their outside basis.

Inside basis is basically the balance in the owner’s capital account. It is the ownership interest in the corporation, but not necessarily what that ownership interest cost. Inside basis is maintained on the corporate books. It represents: Read More

Written by | Posted in Corporate

An Overview of S-Corporations

The S-corporation is the most popular tax entity in the United States and the number of S-corps is increasing faster than any other type of entity. A for-profit, state-chartered corporation may elect S Corp status. Additionally, one option available to an LLC is the ability to elect to be taxed as an S-corp. Note that an LLC that elects this status is not a corporation and will not be treated as a corporation other than for tax purposes.

The increasing number of S-corps can be attributed to at least two major factors. First, the attributes of an S-corporation are attractive to entrepreneurs. Major advantages are that losses can be passed on to the shareholders and deducted on their individual returns. The S-corp provides limited liability protection and it is easier to raise capital as a corporation. Additionally, S-corp earnings are not subject to self-employment taxes, Read More

Written by | Posted in Corporate • IRS
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