Question for an attorney or accountant

[jamesray50]

A couple of years ago I formed an S-corp and dabbled in a couple of internet money making websites. I didn't make much money and gave them up and filed a final tax return for the corporation for both the state and federal for 2009. I also closed my local accounts too.

Since I have started this bookkeeping business I was just going to do it as a sole proprietor, but the IRS requires anyone the prepare taxes, even payroll taxes, to have a PTIN. And I had to register for it by 12/31/10, which I did yesterday. They required a TIN for the registration, so I used the one I had with my S-corp. And they accepted it and I was given a PTIN.

I have checked with the State Treasurer's Office for KY and my S-corp is inactive and in bad standing. It's in bad standing because I didn't pay the $15 fee for 2010 even though I have repeatedly sent them copies of my return showing them I had filed a final return. But KY is notorius for not paying attention to any returns showing that they are final returns. But, anyway, I can reactivate my account with them by filling out a form and paying a fee.

What I am wondering is can I do the same with the IRS? Is there a form where I can reactivate my S-Corp? Any help in finding this form, if there is one, would be appreciated.

Thanks.

[Evan]

Jo Ellen,

The PTIN doesn't belong to the entity, it belongs to you individually. I wouldn't sweat it that they "accepted" it with your former business. Get an EIN for your new bookkeeping business (required for filing tax returns), and go on your merry way.

I wouldn't bother re-activating the corporation. You'll need to pay all state income taxes from the date it was inactive until now, and file tax returns from then until now, and get a letter from the Department of Revenue (usually another fee here) saying your current. Then you send this letter in to the Secretary of State to be "active" again, which will require filing annual reports (and potentially late fees) for the years inactive. Not worth the pain and aggravation in my opinion.

[jamesray50]

Right now my business is a sole proprietor, but I don't think I want to keep it that way. I never owed any taxes cos I never earned any income. My corp name was J. E. Peters, Inc. I was thinking I could reactive it as J. E. Peters, Inc. dba Top Notch Bookkeeping. But are you saying that it would be better for me to get an EIN for Top Notch Bookkeeping? And if I incorporated, which would be better, and LLC taxed as an S-Corp, or just an S-Corp.

I still think I may run into a problem with the PTIN though, because I listed J.E Peters, Inc. as the company. But, it's just a provisional and mine expires 12/31/11. I'll only have to take the payroll taxes test.

Thanks a lot for your help. I appreciate it.

[Evan]

If you wish, incorporate the business again using that name (filing new Articles of Organization). As you did dissolve, the entity name did become available again. I wouldn't bother reactivating the same corporation and being liable for returns during years you ceased to exist. [Best explained that you should consider this to be a second child, not the first child alive and well, then kidnapped, and found again... it's best to consider just a fresh start.]

LLC vs S-Corp has been discussed several times here before. What to do depends on state requirements and total costs of operations. For a comparison of states here... In RI, it's more expensive to incorporate than form an LLC. Both will pay a $500 minimum business tax, and the annual report with the Secretary of State is $50 each. The initial expense is cheaper with the LLC, so that makes more sense, and it also provides a lot more flexibility with taxation.

Looking at Massachusetts, filing an LLC is also cheaper, and you don't need to file a separate tax return if you're disregarded (yay!). But the cost of your annual report is $500. If you were a corporation, a bit higher initial fee, but the annual report is only $50 (approximately). Minimum business tax of $456 is due by an S-Corp. But if you're an LLC taxed as an S-Corp, now you're paying $456 minimum business tax and for a $500 annual report just to remain in existence. The reality is it brings out the WORST of both entities and wouldn't be advisable.

In some stats, it's just much cheaper to operate an LLC than an S-Corp, and the other's it's the opposite. But keep in mind S-Corps aren't always advantageous, and are NEVER recommended for an entity with appreciating assets (e.g. real estate).

You won't run into a snag with your PTIN. It doesn't matter. The number belongs to you, and not the entity.

[OldJack]

But keep in mind S-Corps aren't always advantageous, and are NEVER recommended for an entity with appreciating assets (e.g. real estate).


While I generally agree that real estate not be held in a small C-Corporation there is little reason not to hold it in a S-corp. The sale of real estate in an S-corp passes the gain/loss to the shareholders with the same tax result as if it had been owned by the shareholder. The only real disadvantage is you can't take the real estate out of the corp without sale and gain/loss recognition. There are advantages such as multiple ownership by way of stock issued that can easily be transferred for continuation of the entity.

[Evan]

OldJack,

If the "S" election is blown with appreciating property in the corporation, that becomes quite sticky. When the shareholder/owner decides to retire and wishes to dissolve the business, you're creating a taxable transaction that probably wasn't expected. If the business is doing rentals, losses cannot be deducted if you don't have basis which is much easier to lose in an S-Corp than say a partnership where debt increases your basis. Further, if you're managing properties in an S-Corp, you should be taking a salary (subjecting R/E transactions to SE tax, which you wouldn't had you solely owned them individually... assuming you're not a real estate professional.)

If the S-Corp was previously a C-Corp, it can be even more messy if there is accumulated earnings & profit. Further, when many businesses sell their businesses (depending on the nature of operations) they often sell only the assets and don't want to sell real estate. Why would you now create a taxable event?

Of course there is a lot that could be discussed on the matter, but overall I think it's easier to maintain real estate in an LLC these days.

[tennisboy]

Looking at Massachusetts, filing an LLC is also cheaper, and you don't need to file a separate tax return if you're disregarded (yay!). But the cost of your annual report is $500. If you were a corporation, a bit higher initial fee, but the annual report is only $50 (approximately). Minimum business tax of $456 is due by an S-Corp. But if you're an LLC taxed as an S-Corp, now you're paying $456 minimum business tax and for a $500 annual report just to remain in existence. The reality is it brings out the WORST of both entities and wouldn't be advisable.

In some stats, it's just much cheaper to operate an LLC than an S-Corp, and the other's it's the opposite. But keep in mind S-Corps aren't always advantageous, and are NEVER recommended for an entity with appreciating assets (e.g. real estate).

You won't run into a snag with your PTIN. It doesn't matter. The number belongs to you, and not the entity.

I'm in MA and am considering being an LLC but taxed as an S-Corps. Other than the filing fees - which I admit are pricey - isn't it a good idea if one is profitable to be an LLC taxed as an S-corps? Or does it make sense to just be an S-corps and forget the whole LLC thing altogether? I am running a single member consulting company (I may have 1099-consultant "employees" but nothing more). I am also undecided about Turbo Tax versus hiring an accountant. Any advice?

[jamesray50]

(I may have 1099-consultant "employees" but nothing more).

You either have independent contractors who you send 1099's to or you have employee's, but you can't have consultant's that you consider employee's and then send a 1099 to at the end of the year. If you are controlling their work, supplying them their material, telling them what hours to work, etc. then most likely they are employees. If they are setting their own hours, use their own materials or equipment, send you an invoice for their services and work for other people, then they are independent contractors.

[tennisboy]

They would be independent contractors. But that is not the crux of my question/concern. I would like to know the differences between being an LLC taxed as S-corps versus simply an S-corps

Thanks

[Evan]

I'm in MA and am considering being an LLC but taxed as an S-Corps. Other than the filing fees - which I admit are pricey - isn't it a good idea if one is profitable to be an LLC taxed as an S-corps? Or does it make sense to just be an S-corps and forget the whole LLC thing altogether? I am running a single member consulting company (I may have 1099-consultant "employees" but nothing more). I am also undecided about Turbo Tax versus hiring an accountant. Any advice?

Why would it make any more sense? You're paying 100% more in taxes than if you just became the corporation to begin with, and you'd be filing the same forms anyways.

[tennisboy]

Exactly. So no difference between S-Corps or LLC as a S-Corps except the latter is costlier in MA. (though the former has stricter requirements, like I have to pay myself a salary through a W-2, etc..)

[Evan]

If you're taxed as an S-Corp, both would require you pay yourself a salary through a W-2, etc. They are identical, tax wise, in every regard, except for MA purposes where your tax will be double (entity-level tax).

An LLC taxed as an S-Corp doesn't have any "less" strict requirements. By electing to be an S-Corp, you're agreeing to ALL of the terms as if you were a corporation electing to be taxed as an S-Corp.