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Start-up S-Corp 1st year tax returns

A friend of mine formed an S-Corp in Virginia about a month ago. He used an attorney to set it up. He also met with an accountant first, so he and they were clear that an S-Corp was the best entity choice for what he will be doing. He originally intended that the S-Corp would be set up to actually become effective as of January 1, 2009 because he won't be starting any business activity until after that date and he didn't want to be concerned about having to file a 2008 tax return for the new corporation. But he apparently didn't communicate that very well to the lawyer and the S-Corp was filed and became effective about a month ago.

The question now is, "What needs to be done in terms of state (Virginia) and federal tax returns for the corporation for 2008?" My guess is that since the articles of incorporation were already filed, and there was nothing in the articles to say that the effective date of the corporation would be January 1, 2009, he will need to file a 2008 state and federal corporate tax return. The only transactions related to the corporation in 2008 will be the start-up costs which include the filing fee and the attorney fee.

He said that the accountant said all he has to do for this year (2008) is list his business startup expenses on a form that goes with his personal tax returns for 2008. That doesn't make sense to me, and I have a hunch that either he didn't explain the question well to the accountant or he misunderstood the answer he received.

Am I correct in assuming that he will need to file a 2008 state and federal tax return for the corporation and that he cannot just list the startup expenses on a form attached to his personal 2008 returns? And, if he does have to file a 2008 state and federal tax return for the corporation, and his only expenses in 2008 will be the filing fee and attorney fee (there is no business activity and no income for the corporation), is that something that he can do on his own without having to pay an accountant to do? He will be using an accountant for books, recordkeeping, tax returns, etc. for

2009.
Reply to
Beta-32
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"Beta-32" wrote

Let's get one thing straight. The Secretary of State (for every state) doesn't talk to the IRS, or their own revenue departments for that matter. So, you can form a corporation with the Secretary of State (generally the place) and never get a tax ID number to report under - and - you can get tax ID numbers from the IRS and the state revenue departments and never have filed the corporate papers with the secretary of state.

That being said, there is (or should be) a document from the IRS that assigned the tax ID number, and one accepting your "S" election. Those documents, more than anything else, dictate when you have filing due dates.

So, check those documents carefully to see what they say you should be filing (1120 or 1120S) and when (March 15th for "S" corps). Depending on what they were told on the SS-4 application for the tax ID number, there may be other tax reports due.

At a minimum you'll file returns with *mostly* zeros, reporting the start-up expenses and electing to amortize them. There may be other elections to make, or other income or expenses to report.

If that's the case, have the accountant prepare the 2008 return. Should be nearly nothing for this type of return.

And yes, a corporate return IS due for 2008. When is determined by what the notices that you received from the IRS say. Also the state (and county or city) generally has some type of tax or fees due of some nominal amount.

Also there will be an annual corporate renewal fee, so have someone check on that too.

Reply to
Paul Thomas, CPA

Paul,

Thanks for all of the information. That helps a lot. I'll pass it on to my friend.

I do know that the accountant and lawyer coordinated with each other and one of them (probably the accountant) did the SS-4 and obtained a federal tax ID number and did the S-Corp election. The corporation's tax year was set up to end on December 31, so it's fiscal year is the same as the calendar year. I just looked up the corporation online on Virginia's website and the corporation is definitely active and effective now.

Obviously my friend is confused because he thinks his accountant said that he will not need to file corporate tax returns for 2008, and that he can just list his business startup expenses on his own 2008 personal tax return. I think the miscommunication is that the accountant still thinks the corporation was set up to not become effective until January 1, 2009, but the lawyer set it up where it is effective now.

Anyway, I'll pass the > "Beta-32" wrote

Reply to
Beta-32

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