I have a single member LLC in California and paid the $6000 fee estimate in 2010 using form 3536 as I thought my sales would be over a million but they came in just a bit shy so I only owe $2500 for 2010.
At the moment I have recorded the $6000 as an expense on 2010 federal schedule C, what is the proper way to handle this?
A) Change the $6000 on the schedule C to $2500 and request a refund for the $3500 overpayment on form 568.
B) Leave it as $6000 on schedule C and apply the over paid amount to future tax years on form 568?
If the accounting method on Schedule C is Cash, then include the full $6000 as an expense. In the 2011 Schedule C you will include the $3500 refund as income (which makes it subject to SE tax). If your net income and net business income are negative for 2010 then you have a NOL and should take special efforts to deal with this. I hope you don't get an IOU!
Ok, I am using cash accounting method on Schedule C so I will include the full $6000 amount as an expense. Is it ok to apply the $3500 overpayment towards next years amount due and not have it returned to me and thus not include it as income for tax year 2011?
It doesn't matter what you do with the overpayment, it will be income in 2011. If you apply it towards next year's amount, you report the overpayment as both income and tax paid. If you take the overpayment as a refund, you report the overpayment as a refund and you deduct whatever you pay in 2011 towards the LLC fee.
If you apply it towards next year's amount, you report the overpayment as both income and tax paid.
I would like to apply my 2010 overpayment of $3500 on line 12 of form
568 to go towards the expected $2500 fee and $800 tax in 2011 leaving $200 which I could continue to carry over for 2012 but am still a bit confused about two things, are you saying that:
1) I should report all or some of this $3500 overpayment as income in
2011 even though I will not get it sent back to me?
2) I should report all or some of this $3500 overpayment as tax paid since even though I have already reported it as paid as part of the $6000 expense reported in 2010 on schedule C?
2011. If you apply it towards next year's amount, you report the overpayment as both income and tax paid.
Yes, and yes. When you pay the state it's a deduction. When you get money back, whether or not you take possession of the cash, it's income. The cycle repeats until all of the $6000 is used up.
2011. If you apply it towards next year's amount, you report the overpayment as both income and tax paid.
back, whether or not you take possession of the cash, it's income. The cycle repeats until all of the $6000 is used up.
Ok, I think it will help me to provide some actual numbers, appreciate confirmation that I am understanding this correctly.
In 2010 I paid $6000 estimated fee and $800 tax and reported both of these as expenses on my 2010 Schedule C. Doing my 568 return today I realize I overpaid my estimated fee by $3500 and want to apply that to
2011 form 568.
In 2011 I expect my LLC will owe a $2500 fee and $800 tax or $3300 which would be covered by my previous years $3500 overpayment leaving a $200 overpayment that I will apply to 2012 tax year. So I should increase my 2011 business income on Schedule C by the $3500 overpayment and list as an expense for 2011 on Schedule C the $3500 overpayment applied towards the $3300 amount due.
In 2012 I expect my LLC will again owe a $2500 fee and $800 tax or $3300. My understanding is the remaining $200 overpayment will automatically go towards the $800 tax so I will need to mail a check for $600 with form 3522 to complete payment of that $800 tax and another check for $2500 with form 3536 for the estimated fee. So I should increase my 2012 business income on Schedule C by the $200 overpayment and list as an expense for 2012 on Schedule C the $200 overpayment applied towards the $800 tax due, the remaining $600 I mailed in for the $800 tax, and the $2500 for the estimated fee.
You have to include it as income in 2011. The fact that you're having the FTB keep it is a convenience. In theory it's better to always get the refund in hand so that you can earn interest on it, but interest rates are so low so why bother? However any amount you pay in 2011, like $3500, will be an expense and thus balance out!
Ok thanks, at first I could not wrap my mind around reporting the overpayment as expense since I had already reported it but now understand as you point out that it balances out since the same amount is reported as income as well.
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