"Tony Cox" <tc[at]coxrt.com> wrote:
- quote -

You missed my correction. I meant to say that I pay myself
when the company has enough money

- quote -

We agree that credit card purchases are treated as expenses
as soon as they are posted to our account by the credit card
company. As to why they should be paid at year end (for a
Cash Basis business) I will defer to the pros here. We pay
them off because our account says we should. Perhaps he
does not trust QuickBooks to put list all those charges as
expenses, but I just checked and all unpaid credit card
charges show up as expenses on my P&L report.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"Victor Roberts" <xxx[at]lighting-research.com> wrote:

- quote -

Presumably "lay myself off". Or is your business much more
exciting than mine?

I'd love to do this, but the terms of our health insurance
policy state that it's only available to employees working
more than 30 hours/week. So we crank out a check every month
to be sure we'd survive an insurance company audit.

- quote -

Why? Aren't CC balances treated as short-term loans? I was
under the impression that CC purchases hit the books on the
day you use the card, regardless of whether you are using
cash or accrual methods of accounting.

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Victor Roberts <xxx[at]lighting-research.com> wrote:

- quote -

Sorry folks. That should have read PAY myself. The L is
after all right next to the P on my keyboard.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"Tony Cox" <tc[at]coxrt.com> wrote:
- quote -

If the employee is the owner then I would expect that it
would be easy to get agreement :-)

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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William Brenner wrote:
- quote -

Hadn't thought of it that way, but by Jove! I think you're
right.

I inquired at the British army records office at Kew some
years back, seeking to find record of any Lunsfords who had
been members of the army back during the Revolutionary War.
And since I indicated to the steward that these five
brothers had deserted while in North Carolina his reply was
that "in that case their names were stricken from the rolls,
and no mention will you find."

ChEAr$,
Harlan

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Tony Cox wrote:
- quote -

Good to know that, Tony. So I will amend to say: "No
federal law says......"

ChEAr$,
Harlan

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

By the by, annual is the method formerly used to pay English
army officers in the 19th century.

Yes, but in those days, the officers purchased their
commissions. In other words, the officers were
independently wealthy and did not require the salary for
living expenses.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

That's exactly what I do in my single-employee C corp (minus
the draws of course) I lay myself when I have money, which
means perhaps no paycheck in January or February, then
quarterly unless the company is flush and pays more
frequently and then a check on the last business day in
December to finish off the year.

The OP also needs to pay off any company credit card bills
and make sure that she doesn't leave more money as "profit"
sitting in the company bank account than necessary.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"Josh100" <iamsoccer[at]gmail.com> wrote:

- quote -

If she is really "small", so that the loan is never larger
than $10K, I think this counts a "de minimus" and no
interest needs be paid. Isn't that right? Otherwise, the
interest rate ought to be "reasonable" in case anyone
questions it. Having corporate minutes documenting
the loan prior to any draw wouldn't be a bad idea
either.

I always remember the words of my CPA-mentor
when setting up my businesses. You guys will hate
this, but here goes. "No one is 100% honest", he'd
say. "Lets be 98% honest and see how far that gets
us". Here, hidden in that 2%, are the post-dated
corporate minutes and the cavalier distribution of the
funds in the first place. But with no requirement to
file a return on the loan, its between her and God,
who will no doubt be far more forgiving than the EDD.

tc

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Harlan Lunsford wrote:

- quote -

Depends on the state. Here in NV employees must be paid at
least twice a month unless special exception is made (NRS
608.060). This exception must have employee's agreement (NRS
608.070) and he or she can't be fired if they don't agree.

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Harlan Lunsford wrote, in part:

- quote -

Cynic that I am, the thought occurs that under that policy,
they would have had to pay only those officers who survived
the particular year's battles.

Bill

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Tony Cox wrote:
- quote -

Tony has the gist of it methinks. There are accountants out
there who get all up tight when....

aww, nevermind.
IOW, this isn't rocket science.

ChEAr$,
Harlan Lunsford, EA n LA

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Tony's idea is another route I didn't think of. She could
consider the money taken out of the corporation as a loan.
She will have to repay this to the corporation. When she
repays it, for example in December, the corporation can then
turn around and pay out a salary in the same amount. Because
the salary is all paid out in December, there will be no
past penalties for not filing quarterly payroll taxes. Those
payroll taxes can all be sent in this month. This route will
also save having to do a lot of past paperwork. The income
and employment tax burden will still be the sme however.

Note that if she never intends to pay back the loan, the
Code prevents it as being classified as a "loan" on the
Corp's taxes and she must take it into income on her 1040.
And in that case we would be back to page one. The Code
requires a clear indications that it is a loan with the
intent of being paid back. For example, there must be a
stated interest rate, a stated payback period, and so on.
What is a loan and what isn't has volumes of complicated
case law lurking in the background. But in summary, she must
have the intent of paying back the loan.

I still recommend she sits down with a tax professional so
that she can get tax planning that is catered to her
individual cirsumstances. There isn't a one-fit-all solution
here.

Josh

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Josh wrote:
- quote -

Naw..... Classify all "draws" as officer receivable and
then in December wipe most of it out with an annual salary
check. No law says that a salary must be paid weekly,
monthly, etc.

In fact I think next year I'm just going to wait till
December to record my payroll. By the by, annual is the
method formerly used to pay English army officers in the
19th century.

ChEAr$,
Harlan Lunsford, EA n LA

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Tony Cox wrote:
- quote -

I agree that things need to be done now, but Josh's #1 would
have the poor woman simply preparing a W-2 showing no
withholding and ignoring the December deadline altogether.
Wouldn't this then subject her (as employee) to interest
charges and possible penalties for not making estimated tax
payments on her 1040? And her corporation to "failure to
file" 941's, interest and penalty for not withholding and
transmitting federal tax payments, and possible civil and
criminal sanction for defrauding the social security trust
fund? And that's just the fun the feds will have. EDD will
likely have a field day too!

Sounds alarmist (and completely unnecessary) to me. But then
I'm not a CPA. Perhaps you guys don't get alarmed by any of
this. The poor woman is in the first year of her business. I
don't know about you, but advice like that would have caused
me to abandon my business and run screaming into the hills!

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Josh wrote:
- quote -

I'm not a CPA, nor do I play one on TV, but what's wrong
with this scenario?

a) Classify the existing distributions as a loan from
the corporation.

b) Pay employee in December a whopping salary, properly
withholding SS, Medicare, employment taxes, Fed income
tax + EDD stuff

c) Employee uses the proceeds to pay off the corporate loan.

d) File last quarter 941 on Jan 15 2007 as would be normal
were one simply to have started payroll in 4Qtr '06.

e) Set a reasonable salary for next year & carry on filing
as normal.

There's no need for any penalty here now is there? She'll
just have to get busy registering with EDD and getting all
the employment blurb stuff from the web before the end of
the year.

- quote -

Actually, I thought your proposals, rife with talk of
penalties and "red flags" quite alarmist. Why frighten the
poor woman?

Moderator:
I thought it was mild! This is December and it needs to be
now or else.

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kimshapiro100[at]yahoo.com wrote:

- quote -

Has your friend kept a record of the amounts of money she
has taken out of the corporation every month?

I see two courses of action that she can take assuming she
has kept decent records:

1. Assuming the monthly distributions are reasonable, she
can still consider the distributions as a salary. Under this
route she must prepare a W-2 at year-end like normal that
shows the amount of money she has taken. It sounds like she
nor the corporation has paid employment taxes on the money.
So there are back taxes she must pay. Because employment
taxes must be submitted via Form 941 on a regular basis, she
is likely going to have penalties for failure to pay those
regular payments. Also note that when she does her 2007 Form
1040, because she has had no withholding from these salary
payments all year, she is likely to have a huge income tax
burden.

2. The second option would be to classify some of the
monthly payments as salary and some as a dividend. The
benefit of calling some of the money a "dividend" is that
employment taxes won't have to be paid on that money and for
income taxes it is taxed at a lower rate, assuming it is a
"qualified dividend" (see IRS Publication 17 on the IRS
website). Note that someone can not avoid employment taxes
simply by calling money they are taking from a corporation a
"dividend." Congress has given the Secretary of the Treasury
(via the IRS) the right to classify money taken from a
corporation as "salary." Especially if she is the main
employee, red flags will be raised if she is taking money
out of the corporpation yet has no salary income on her W-2.
The requirement for how much must be dictated as salary has
a standard of being what is "reasonable" for the industry
the corporation is in.

It sounds like no matter what route your friend takes she is
in for a heavy tax burden, whether employment taxes, income
taxes, or both. There are exceptions to this and so it would
be wise for her to sit down with a tax professional that can
look at her individual circumstance. For example, if the
corporation was operating at a loss, what I have written
above might not apply.

Hope this helps,
Josh

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urgent...payroll tax issue
*******************************
My friend started a tiny business in Jan 2006. She got an
investor to put a small amount of money. It is a C Corp in
California.

She was supposed to be an employee with a salary. She was
so busy ..being a one woman show..that she did not take a
salary. She just drew an amount of money every month.

Now she is trying to get her act together...and get herself
to be paid like an employee and rectify her mistakes of the
whole year.

What does she have to do to rectify this situation ?

What forms?

Any penalties?

Is it very complicated?

Thanks
Kim

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