Originally Posted by lasierra58
Hello, there! I have an LLC sole member, and I filed business/personal taxes using 1040 Schedule C. I also made estimated tax payments, to which I was just told by the IRS that by doing so, I automatically converted to a corporation and that I needed to file Form 1120, to which I am now almost 2 months delinquent, which is $195 for each month I am late. I am a bit confused - did I alter my business entity by paying quarterly taxes?
Any advice or explanation would be much appreciated! Thank you!
Your LLC can become a C corp after its formation, but it is not an automatic process. Also, you need to get some answers before you take action to avoid any unwelcome surprises and tax consequences. Be aware, however, it is not as simple as just becoming a C corp. There is no automatic conversion feature. Always you need to find up-to-date information or get advice from an expert as state regulations and tax laws can change. Converting from your LLC to a C corp delivers some good tax news initially. There are no unpleasant tax consequences if the value of LLC assets has increased since formation when you convert your business to a corp. However, a C corp is liable for federal and state income taxes on its annual net profit, unlike an LLC, if you've chosen to be taxed as a C corp. Corporate tax rates are usually higher than personal tax rates, so you'll lose this advantage. Double taxation also can occur if your C corp pays dividends to yourself as ashareholder, since this cash comes from net profit, which has already been taxed.as you are filing as a C corp you generally have to make estimated tax payments for your corp if you expect it to owe tax of $500 or more when you file its return.You, as the "sole owner of the Corp also called shareholder, and also presumably an officer are a statutory employee due to being an officer and should be drawing reasonable compensation. You ned to pay FIC Atax and, the amount should be reported and a W-2 issued. IRS requires C corporation to pay shareholder employee a reasonable salary.