"Katie Jaques" <katiej_1958[at]yahoo.com> wrote:

[snip]
- quote -

Yes - he paid tax based on a projected 1040 income of:

2002 - 60k K1 and 40k W2
2003 - 50k K1 and 110k W2

FYI - when I said no checks were written, I meant no
distribution checks, nor did he write any checks for his
W2 pay.

Thanks

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"Lance Mannion" <lancemannion[at]nospam.net> wrote:

- quote -

Well, the best way you can help him is to take him, ASAP, to
a capable professional tax adviser. It doesn't sound to me
as though either of you understands how an S corporation
works.

All of the corporation's net income (not revenue, which is a
term that, in accounting parlance, is the rough equivalent
of gross receipts) flows through to the stockholder and is
taxable to him in the year with or within which the S
corporation's taxable year ends. So he has (or should have)
already paid income tax on the $60,000 of undistributed
earnings from 2002. He can take that cash out without tax
consequence. Same for the undistributed earnings from 2003.
The entire $160,000 will be subject to income tax on his
2003 individual income tax return, and there is no further
tax consequence when he withdraws the cash.

It also sounds as though he has paid in enough in estimated
taxes to cover his income tax liability for 2003.

The issue here is whether he has paid himself enough salary
subject to Social Security and Medicare taxes. But since he
did pay himself (or at least report to IRS and the state)
SOME salary, the chances are probably pretty good that it
won't be questioned.

But at this point he does need professional help.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Lance Mannion wrote:

- quote -

We apprecaite your vote of confidence.

However.... it is not your problem. With respect to year
2002, hopefully the tax return was filed and he reported
whatever remaining net profit on his own 1040 that year.

For year 2003, he should consult his accountant or who
ever's doing the 1120S for the year.

On second glance, it might appear that said tax returns have
not been filed. Am I right? If so, recommend that your
brother get himself to a local competent Enrolled Agent (EA)
or Certified Public Accountant (CPA) as soon as possible.

Cheer$,
Harlan LUnsford, EA n LA

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My brother's S Corp did not write *any* checks to him in the
last 2 years.

The Corp made all payroll tax deposits (state and fed),
based on the W2 numbers below - except for Q4 2002, for
which he owes approx 10k and a 941 (and big penalties
obviously).

2002 Revenue = 100k
W2 filed for 2002 = 40k
All personal taxes paid quarterly based on projected 1040
income of 100k

2003 Revenue = 160k
W2 filed for 2003 = 110k
All personal taxes paid quarterly based on projected 1040
income of 160k

Simple question - what does he do with the 200k cash sitting
in the corp account. I know he can't backdate checks, so
what can he do ? Thanks !

Note: He is the only employee and 100% shareholder, and it's
a cash basis corp. He may be in trouble here, so after I
yelled at him for an hour, I told him

I will help him. Misc.taxes and MTM was the first place I came.

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