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FAQ

How does a company go from an LLC to an S Corp?
In California you'd first file Certificate of Conversion with the Secretary of State along eith a $150 filing fee. Here’s the fotm with instructions.[1]Then you'd file a Form 2553 with the IRS electing S status. Here’s the instruction with link to form.[2]Once youve converted your entity to a corporation, you’ll need Bylaws, Minutes of a First Meeting, Stock, a Shareholder Agreement and a few other filings. You may want to have a lawyer do all if that.Footnotes[1] https://bpd.cdn.sos.ca.gov/corp/...[2] Instructions for Form 2553 (12/2017)
What return does an LLC has that is 100% owned by a S-corp file?
A sole-member LLC shareholder of an S-Corp is considered a disregarded entity. The S-Corp files the return with the activity of the LLC. The individual sole-member of the LLC is listed on the K1.If a single member limited liability company (LLC) owns stock in the corporation, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner's name and address. The owner must be eligible to be an S corporation shareholder.Instructions for Form 2553 (12/2017)A multi-member LLC cannot be the shareholder or one of the shareholders of an S-Corp. Such an entity is ineligible to make the S-election. If such a situation arises after-the-fact, the S-Corp status is automatically revoked.To qualify for S corporation status, the corporation must meet the following requirements:Be a domestic corporationHave only allowable shareholders May be individuals, certain trusts, and estates and May not be partnerships, corporations or non-resident alien shareholdersHave no more than 100 shareholdersHave only one class of stockNot be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).S Corporations | Internal Revenue ServiceHowever, a multi-member LLC itself can elect to be treated as an S-Corp assuming it meets the other requirements using a form 2553. The LLC would not own the S-Corp; it would be the S-Corp. It would file an 1120S like any other S-Corp, and it would not be treated as partnership for tax purposes.Some states, such as New Jersey, require a separate state election in addition to the federal election to be treated as an S-Corp at the state level.
The IRS never received my S-corp filing, so now I have to file as a C-corp. How does this affect my business?
Regardless of being a C corporation or S corporation, you are incorporated.The issue only has to do with taxes. As a C corporation, your company will pay any taxes owed - assuming you will have a profit. If your company incurs an operating loss (called a net operating loss), you will owe no tax but will lose the ability to use that loss to offset future profits as long as the company files as a S corporation (beginning in 2018). The net operating loss can be carried over for up to 20 years.The filing of an S corporation return ensures that any profit or loss will be reported on Schedule K (and the K-1) so that it will flow through to your individual return (assuming you own the company personally). Profits will increase your personal tax liability and losses will reduce your personal tax liability. The only caveat on this S corp loss is that your allowable/deductible loss will be limited to your combined stock basis and debt basis in the S corp - see IRC section 1366(d) for more information on that.
As a sole proprietor currently filing Schedule C, under the 2018 tax bill, what do I need to do to claim the 20% deduction for pass-through income?
Nothing. There will be a calculation on your 2018 tax return to take the 20% reduction if you qualify for it. Note that this will be the return you file in spring of 2019 for tax year 2018. It does not affect your 2017 return that you will file in the next few months.To qualify you have to have business income from a business that is not a personal service business and your taxable income has to be less than $157,500 for a single taxpayer or $315,000 for a joint filer.Income from a sole proprietorship, partnership or S Corp qualifies. Note that W2 wages from an S Corp and guaranteed payments from a partnership do NOT qualify.
Can you explain Ketan Parekh's share market scam?
Ketan Parekh was a Chartered Accountant and he was an intern of Harshad Mehta. His only dream was to rule the stock market of India, so he decided to join Harshad Mehta's firm to learn some tricks to deceive the investors.Raising Money:—Before executing his master plan, he first used the pump and dump scheme to raise some money which was going to help him execute his master plan.PUMP AND DUMP SCHEME:— He purchased major shares (20–30%) of new companies for increasing their price to a certain level just to attract other investors. When the price was quite high, he was would sell his stake in those companies, and churn huge profit out of those.So first he pumped the share price by purchasing them and then dumped those shares by selling them.N.B.:- After this scam, the laws of stock market amended in every aspect. And now pump and dump scheme is illegal in stock market.Master Plan:— Unlike Harshad Mehta, who concentrated on retail investors like you and me (individuals), Ketan Parekh concentrated on institutional investors (mutual funds, insurance companies—who invest our money on behalf of us).Pump and Dump scheme wasn’t enough to attract huge institutional investors, so he tricked them through circular trading.CIRCULAR TRADING:—We usually buy shares by calculating its volume (total number of shares of a particular company purchased or sold during a day) on a particular day. If the volume is high, the share is pretty active in the market and has probability of making profit. So to manipulate the volume, some tricksters continuously purchase and sell shares between themselves to make that share active throughout the day.Ketan Parekh was one of the tricksters and through help of others, he started circular trading to tempt institutional investors to purchase those shares and raise its price.When the price would reach its peak, he would sell his stake and made a huge profit out of it.To popularise his name and plan, he targeted media, telecommunication (due to DOTCOM boom), and manufacturing companies for circular trading.He named them K10 shares.N.B.:- Now a days circulare trading is also banned in stock market and its totally illegal for investors to involve in this scheme.GREED:— He wanted to control the entire Indian stock market. For that he needed to find a way to bring humongous amount of money for purchasing shares. That’s when he used pay orders to raise money.PAY ORDER:— It’s like Bank demand draft, or you can say as prepaid instrument. You need to pay certain amount to the bank to get payment order . (You can pledge this pay order with any other banks for loan)He first purchased major stocks of GTB bank and MMCB bank to control bank’s loan decisions.He then collected the pay orders of let say 1000 rupees by paying them 200 rupees, or collecting pay orders by pledging his stake in those banks.Then he would pledge those pay orders with other banks in lieu of money.In this way, he collected 1000 crores of rupees from banks by pledging those pay orders.WHAT WENT WRONG:— He applied for loan from BOI by pledging POs. BOI sanctioned loan by considering the goodwill of Ketan Parekh, and sent those POs to RBI for clearance.Unfortunately, RBI smelled something wrong in those POs (for the first time in 5 years) and declined the clearance of those POs. In fact, RBI started a scrutiny on those banks for approving such huge amount as pay orders.ONCE A GENIUS ALWAYS A GENIUS:— Ketan Parekh was damn sure that, now his scam is going to be revealed by RBI (200:1000 rupees in pay order ratios), so he started selling his stake in all those K10 companies, including his shares in GTB bank and MMCB bank.Between 5 pm to 12 am, after Ketan Parekh’s drastic step of selling shares at boom price, entire stock market crashed.Lots of institutional investors were pushed towards insolvency. Shares of Zee TV, HFCL and many more dropped down to 10% and even less.Parliament was immediately called upon to declare a statement that the government is aware of the scam and steps have been taken. (BULLSHIT)That scam was a reality check for the loopholes in security market laws and the inefficiency of government to control these break down scenario.After this scam, security market law was amended through every page and the environment for trading got reformed for bunkers as well as hilltoppers.It was less of a scam and more of a lesson for both government and investors.Ketan Parekh, the man himself:—image source:—1AA
What IRS tax form will be used for filing LLC?
You actually asked two questions, believe it or not.First, how do you form a LLC (that can be taxed as a S-Corp)?Second, how do you file an S-Corp election for a new LLC?The reason they are two questions, is because they are two steps. You form a LLC with the state (or states) your conducting business, and you elect S-Corp election with the IRS.Step #1: Form your LLC in the primary state you’re doing business. 90% of the time, this will be the state you’re located in. If, however, you are doing most of your business somewhere else, consider forming a LLC in the state you’re doing most of your business. If you’re doing business in more than one state, then consider forming in the state where most of your business is and then “foreign file” your LLC in the other state (or states) your conducting business.Confused? We have an intelligent AI-based “entity selection tool” that only takes a few minutes, and is quite sophisticated. It even factors in Trump’s 2017 Tax Reform Act. You can access it here: Business Entity Selector Tool | Law 4 Small Business, P.C. (L4SB).Step #2: Once you have your LLC formed, THEN you fill out IRS Form 2553 and send it into the IRS. This is the “S-Corp” election form. Note that there are some limitations on who can own an S-Corp (i.e. only US citizens, no other companies, unless S-Corps themselves, etc).Good luck to you. Larry.
How and where do I form my S corp?
This seems like such a simple question, but there are a lot of issues. I’m sorry, please bear with me.(Note: I assume you understand the requirements and limitations associated with S-Corp tax status, i.e. cannot have foreign owners, etc)First, do you already have a company and are simply trying to change its tax status? If so, then you just need to fill out IRS Form 2553 and send it in. Please coordinate with your CPA / Accountant, to make sure you’re doing this properly and in a manner that won’t complicate your circumstances within a given tax year.ORSecond, do you already have a LLC and your accountant told you that you need a S-Corp, and you’re thinking you need to change from a LLC to a S-Corporation? If so, then think again. A LLC can be taxed like a S-Corp, so there is no reason (except in very limited circumstances — please consult with a tax attorney or CPA) not to simply change the tax status of your LLC. See the instructions in the First Answer above.ORThird, you have no company, and want to start up a S-Corp? If so, then . . .Are you sure of the entity type? Note you can get S-Corp tax status with a number of different entities (i.e. Corporation, LLC, Professional Corporation, etc), so you want to FIRST PICK the best entity / corporate structure, and THEN SET the proper tax status. We have an entity chooser that is very smart (and even factors in Trump’s 2017 Tax Reform Act), it only takes a few minutes: Business Entity Selector Tool | Law 4 Small Business, P.C. (L4SB).Do you care about anonymity? If so, then you cannot go with a Corporation, you will need a LLC. And, not just any LLC, but an Anonymous LLC. If you are conducting business in a state that permits anonymity (i.e. AL, CO, DE, GA, IA, NM, VA, WY), then you can simply file for an anonymous LLC in that state, but if you operate anywhere else, then you need to get a more complicated structure (parent/child, where the child company is an operating company in the state you’re conducting business, which is owned by the parent structure which is an Anonymous LLC from one of the anonymous states that is acting as a holding company). Learn more: Maintain Your Privacy With an Anonymous LLC | Law 4 Small Business, P.C. (L4SB).Once you’ve figured out the above, then pick someone to help you form the company. I am an attorney, so I am biased. If you are going to be a sole-owner, then any reputable online company will be okay. If, however, you have multiple owners, you really owe it to yourself to hire an attorney or law firm to help you. The reason is, multiple owners means “partnership,” and as an attorney, I’ve seen horrific, bankrupting, heart-attack forming fights between family members, former friends, spouses, etc, fighting about their companies — many of them where the formation documents are just so poorly drafted it created significant problems trying to resolve disputes or deal with a problematic partner / co-owner. Only a law firm or attorney will be able to consult with you properly, and make recommendations on the best way to form a partnership. We charge about the same as “the other guys,”. Learn more: Form a Limited Liability Company (LLC) | Law 4 Small Business, P.C. (L4SB).Finally, once your entity is formed, don’t forget to obtain your FEIN and then file IRS Form 2553.Good luck to you! Larry.
Can members of an LLC receive a salary?
The answer is “yes,” depending on how the LLC is taxed.LLC’s can chose one of four (4) tax treatments, depending on a few issues. Those tax treatments are:Disregarded. Only if owned by one person, or only owned by a married couple if a community property state. This means the entity doesn’t exist as far as the IRS is concerned, and all profits and losses “pass through” to the owners (i.e. you report income on your Schedule C). This is the default for sole-member LLC’s.Partnership. Only if owned by more than one person (or entity). This is the default for multi-member LLC’s. It means the company is taxed as a partnership, and the company issues K-1’s to the owners for the apportioned profits and losses (i.e. this is another “pass through” entity).S-Corp. This can be elected by sending in an IRS Form 2553, and provides certain tax benefits including savings on self-employment tax. There are several differences over #2, Partnership, above, including limitations on the number and types of owners, as well as you must make distributions pro rata depending on percentage of company owned. This is the final “pass through” entity. Like a partnership, a S-Corp issues K-1’s to the owners.C-Corp. This can be elected by sending in IRS Form 8832, and the LLC becomes its own taxable entity. Profits and losses DO NOT pass through to the owners, and consequently can create “double taxation” issues for the owners (i.e. a C-Corp pays taxes on its profits, and the owners pay taxes on the distributions paid to them).#2 and #3 above can issue salaries and the owners can be W-2 employees of the LLC. #1 you definitely cannot issue W-2 wages to the owners, but I’m not sure about #2. You should consult with a CPA or tax professional to better understand what is best for you.Note that we have a rather intelligent, AI-based “entity selection tool” that helps you with this, depending on your circumstances. It even factors in Trump’s 2017 Tax Reform Act. It only takes 5 minutes, if you’re interested: Business Entity Selector Tool | Law 4 Small Business, P.C. (L4SB).Good luck to you. Larry.