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Posted by Harlan Lunsford on December 7, 2006, 8:49 am
Please log in for more thread options Tony Cox wrote:
> Josh wrote:
>> kimshapiro100@yahoo.com wrote:
>>> 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?
>> 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.
>>
>> 2. The second option would be to classify some of the
>> monthly payments as salary and some as a dividend
>>
>> 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.
> 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.
>> Hope this helps,
> 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.
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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