I am not a tax pro, but as an owner of a small C Corporation in NY I know that if your friend's company was incorporated in January 2006 and she took any salary and has not yet filed any Federal tax forms, specifically Form 941 Quarterly Returns, and withheld income taxes from her salary and deposited that withheld tax to the IRS, she has already missed three deadlines. She probably also had an obligation to withhold and deposit taxes and file quarterly returns in California.
She should see an accountant this year, that is this week, and learn about her filing obligations.
-- Vic Roberts Replace xxx with vdr in e-mail address.
California also has an $800 minimum tax, which must be paid even if the corporation made no money at all or had a loss. I don't do returns, so I am not familiar with which form that goes on. Stu
I believe this is the same person who posted earlier this month saying her "friend" had paid herself money and not withheld any taxes. The consensus work-around was to claim the previous distributions as a "loan", issue a paycheck in December & use the proceeds to pay back the loan. If so, then she may well be able to stay within compliance.
Vic's response is spot on. You MUST get professional help asap. You must also register with the CA EDD to get an account number and forms to make CA filings. If you haven't yet got an EIN from the IRS, then you'll need one of those too, although I believe you might be able to file "applied for" in the box where it would normally go. NOTE: I'm not a CPA. But I have run a CA corporation and hopefully this will help you understand the process if you're desperate and cannot set up an appointment for professional advice before the end of the year. The first deadline is December 31. You must pay yourself by this date, calculating whatever withholding you'll be responsible for. This means you'll already have understood the Fed and CA withholding requirements. Get on it right now. Your next important deadline will be Jan 15. This is when you must properly deposit the federal taxes you will have withheld from your December paycheck. CA will be keen to get its share of withheld taxes too, together with unemployment insurance and SDI. The EDD will tell you when these need to be filed; I believe it is the end of January, but check with the EDD. Next, you'll file a 941 by Jan 31 reporting taxes withheld. The EDD has something similar. Then, you'll need to file W-2s. I think this needs to be done by the end of February. The W-2 that gets issued ends up on your personal tax return, but the corporation must file copies with the IRS. Corporate tax returns for calendar year filers are due on March 15. Do this even if you aren't showing any net income. CA has similar filing requirements, and don't care one jot that you've not made any money -- they'll rip you for $800 at that time, I believe. This all quick and dirty. Do yourself a favour and take Vic's advice very seriously. GO GET PROFESSIONAL ADVICE. These things must be taken very seriously. If you think penalties for messing up your personal taxes are bad, wait till you find out what they do to employers that mess up!
Depending on the facts, she may not even have "started business" yet. One definition for when you start business is when you start generating revenue, up until the time you start business, you're generally incurring "start-up" expenses which get capitalized and amortized rather than being expensed currently. While she should have sought professional advice sooner, she should talk to a CPA or other professional advisor as soon as possible and definitely by mid-January at the latest when informational returns and other year-end filings (e.g., 941's) start coming due.
Your friend must find a qualified tax adviser NOW. She should have done that months ago. The corporation must file federal and California corporate income/franchise taxes (Federal Form 1120, California Form
100). The original due date is March 15, 2007 (assuming this is a calendar year corporation). She should also have filed employer tax forms with both IRS and EDD (941 and DE-3) to report her salary and pay federal income tax withholding, state income tax withholding, FICA, and state unemployment and SDI taxes, and she must prepare and file W-2s for herself and any other employees. There are decisions to be made as to which of the corporation's expenses are currently deductible and which are organizational or start-up expenses, and elections to be made on a timely filed return for the first year. There is no excuse for not getting professional help. It will be more than worth the cost. Katie in San Diego
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