Can 2013 tax returns be amended to reflect new LLC or S-corp?

The only income for someone for 2013 was 1099 consulting income for which Form 1040, Schedule C and Schedule SE (and estimated taxes) were correctly filed on April 15, 2014. The taxpayer got beaten up in taxes. Can an LLC or S-corp be set up in 2014 and then amended returns be filed to re-coup some of the 2013 taxes? Thanks.

Reply to
sbernelli
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In article you write:

An LLC is either disregarded for tax purposes, or it's treated like a corporation.

In the former case, it wouldn't make any difference. In the latter case, it's a different entity than that one that paid the taxes, and I don't see how you could move 2013 income into an entity that didn't exist in 2013.

For 2014, you can of course rearrange things, although in my experience by the time you pay all the costs involved in running a corporation, even a modest one, you need an awful lot of income to save anything. I just pay the taxes on my 1099 income and set my rates appropriately. Everyone knows (or should know) that contractors need to get paid more per hour than employees to end up with the same amount.

Reply to
John Levine

Setting up as a single-member LLC (as I think that is what you mean, because this person is a self-employed individual with no partners in their business) will change absolutely nothing. Single-member LLCs are taxed no differently than sole proprietorships (the current tax ststus of your client/friend). Single-member LLCs also usually have to pay an annual reporting fee to the state they are located.

Setting up as an S-Corporation is a possibility for a tax savings, as doing so will potentially reduce the amount of Social Security and Medicare tax paid. When a business is set up as a sole proprietorship or single-member LLC, the first $ 117,000 of profits will be subject to Social Security tax (that's the amount for 2014), and ALL of the profits will be subject to Medicare tax, as well as regular income tax. But if your client/friends sets up as an S-Corporation, only the part that is designated as the salary they choose to pay themselves (it must be a reasonable salary, somewhat close to market rate), will be subject to Social Security and Medicare taxes. Of course, all of the rest of their profits will still be subject to regular income taxes.

However, setting up as an S-Corp entails a lot more in annual tax filing obligations, you will have to file separate state and federal S-Corp returns for the business as well as a W-2 statement for your salary. Also, depending on the state, as an employee of your own business you may be required to pay into the state's unemployment and disability funds - not a lot of money, but added paperwork and filing deadlines. Finally, some states and cities (New York City comes to mind) tax S-Corporations and may kill some or all of the potential tax savings.

In answer to your original question, 2013 is done as far as your client or friend's tax status goes and they can't file an amended return to recoup taxes, because no S-Corp existed in 2013.

Chris Johnson, EA

Reply to
caj11

With even a single member LLC you can choose to be taxed as a proprietor or as a corporation. That was the purpose of LLC's in the first place - to avoid the issue of whether a limited partnership should be taxed as a partnership or as an association. If state law allows a single-member LLC, it should be treated just like multiple member LLC's for this purpose.

Reply to
Stuart A. Bronstein

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