I just started out my business late december 2007, so no 2007 tax return was filed. I initially applied for my business license as sole proprietorship & registered my bank as sole-proprietor as well. later I listen to my friend and decided to change my election to corporation b/c of the liability advantage. So i fomally filed with my state (GA) then got my EIN etc.., however I didnt change my bank status as sole-proprietorship nor with the local city I just own a small salon business with no employee so i guess corporation is not for me. I ignore all the tax consequence and didnt do anything thru out the year. Now it's time to file my tax return. I'm so confuse and scared b/c I dont know whether I should file as sole-proprietorship or corporation.
Here is a list of question I have
1. Am I too late to make election to S-Corporation?
2. Can I still file my return as Sole-Proprietorship or I have to file 1120 Corporation?
3. I have no employee, do i still require to file form940 and 944 as it said when I recieve my EIN?
4. with c-corporation, I sitll require to file individual 1040 return correct? double taxation?

I really prefer to file Sole-proprietorship self-employed with schedule C than Corporation. Please show me a way out. Any input would help. Thanks!


Jean

It seems that despite the fact that you have formed a C Corporation, you handled all your activity as a Sole-Proprietorship. Whilst this may have been bad from a legal standpoint of view, from a tax point of view, you may have come out ahead for the tax year. The reason is I am almost certain that you did not take a salary from the C corporation, because all the monies collected from the Salon were deposited in the Sole-Proprietorship bank account. Thus, you would be required to a file a limited activity C corporation tax return, but you would have to file a Schedule C reporting all your salon activity. In other words, the double taxation issue may not be an issue for you.

I would immediately hire a CPA and make sure that the above is true and that you now operate your business properly as a Corporation and it is imperative that you have the CPA convert your corporation to an S Corporation. Thus, you would avoid the double taxation scenario.

Here are the answers to your specific questions.

1. Am I too late to make election to S-Corporation?
Generally speaking yes for the past year that is, but you must apply for an S corporation within 2 1/2 months of the new tax year 2009.

2. Can I still file my return as Sole-Proprietorship or I have to file 1120 Corporation?
You be required to file a C Corporation tax return as well as filing a Schedule C as a Sole-Proprietorship, with your net income subject to the 15.3% S/E tax.

3. I have no employee, do i still require to file form940 and 944 as it said when I recieve my EIN?
No, you are not required to file these forms.

4. With a c-corporation, am I still required to file individual 1040 return correct? double taxation?
Yes, you should file a 1040 tax return, and the C corporations are generally subject to double taxation, but only on net profits (see my comments above).

__________________
Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

Thanks for your input. I called IRS today and told them my situation. The lady told me that I can file 1120 stating no income and file 966 for corporation dissolution. I also need to file schedecule C for my business under sole proprietorship with my 1040 individual tax income. Are they right? I know i should take their words but tax consultant told me that i must file this year business income corporation since my business incorporated in 2008.

What is your opinion?
should I file no income in 1120 form for corporation and report my business in my schedule C sole proprietorship? then filed 966 to dissolve it?

or should I listen to the tax consultant and report my business income under C-Corporation (C-Coporpation I will be taxed more), then dissolve my C-Corporation this year 2009?