Too Late For S-Corp?

[Vincent]

Jurisdiction

Illinois

Hello,

Appreciate the advice in advance.

I live in IL.

Married filing jointly.

I have self-employment income.

I am just using my SS # and not an EIN.

I of course receive either a 1099-K or 1099-NEC from companies I work with.

All via direct deposit if that matters.


My question is it too late in the year to start or incorporate into an S-Corp?


If it's not too late in the year, my major question is how will the self-employment income that I already received be handled?

I have already received it in my personal bank account.


Am I out of luck to take a reasonable salary out of that money I already made and any money I make before the end of the year?

Thank you!

 

[Vincent]

Hello,

I live in IL.

I have teenager 15, almost 16 years old and wants to start working.

I am happy they want to start working.

I receive SSDI for myself.

My Child / Teenager receives half of what I get from SSDI.



Will their income from any jobs rather its a W2 or 1099 affect either my SSDI, or the portion that they get under me?

Is there a limit for purposes of the SSDI question to what they can earn?

Or a limit before it would possible affect either one of use collecting SSDI payments?

Thank you!

 

[army judge]

My question is it too late in the year to start or incorporate into an S-Corp?


If it's not too late in the year, my major question is how will the self-employment income that I already received be handled?

One of the best persons to seek tax and S-corp advice from is a CERTIFIED PUBLIC ACCOUNTANT. Another excellent choice is a tax attorney.

Otherwise AVOID seeking FREE tax advice, especially from ANONYMOUS and UNKNOWN to you individuals and/or entities!!!!!

 

[army judge]

Will their income from any jobs rather its a W2 or 1099 affect either my SSDI, or the portion that they get under me?

Is there a limit for purposes of the SSDI question to what they can earn?

Or a limit before it would possible affect either one of use collecting SSDI payments?

Again FREE information from UNKNOWN/ANONYMOUS indivuals/entities is very risky.

I suggest you consult a tax attorney or CPA.

 

[zddoodah]

I'm not entirely sure I understand your questions. You can form a corporation at any time of the year, and you can take a salary from the corporation. Income you earned prior to the formation of the corporation and any salary you receive will be reported on your personal tax return. The corporation's income will be reported on its tax return. If you make an election under subchapter S, then the corporation's "income, losses, deductions, and credits [will be passed] through to [the corporation's] shareholders for federal tax purposes."

 

[adjusterjack]

Why is it that people keep posting here about money issues without ever mentioning how much money is involved.

1 - How much self-employment income have you made this year to date?

2 - What is your monthly SSDI amount?

3 - What kind of work is your teenager looking to do?

4 - What is his potential monthly income going to be?

5 - How much is your teenager getting from SS.?

All of those answers have a lot to do with your original questions.

 

[Tax Counsel]

My question is it too late in the year to start or incorporate into an S-Corp?

Yes, it is too late to make the S-corporation election for 2024. That had to be done no later than March 15. You may file now to make that election for 2025 and the deadline to do that is March 15, 2025. See Form 2553 and the related instructions to see what is required to make the election.

You are operating a sole proprietor now. You'd need to first form a LLC or a corporation and typically it's best to just do that in the state in which you live and conduct the business. You should have a business attorney for that to draft the organizational documents you need and for filing the information the state requires. The LLC is a more flexible form of business, but you may want to discuss with a business attorney what the differences are and which one would best suit you. You want to also learn about the costs of operating as a LLC or corporation. They'll be more than operating as a sole proprietor if you do everything for the LLC or corporation that state law requires.

Bear in mind that the S-corporation won't save you anything in income tax. It can save you some money in FICA taxes (Social Security, Medicare, and Medicaid taxes) if a reasonable salary for your work is less than the income the business brings in. When all the income from the business is from your own personal services it's very hard to make the argument that a reasonable salary is less than you are bringing in until you are earning significantly more than you could hire someone unrelated to you to do ALL the work you do for the business, including the business management, etc.

Typically when you reach that point, the you are earning more than the earnings cap for Social Security and Medicare taxes. That means that most S-corporation owners only save the 2.9% Medicaid tax, and that savings needs to be more than the extra costs associated with a S-corporation to make that worthwhile. I strongly recommend you see a tax professional (enrolled agent, CPA, or tax attorney) familiar with the taxation of business entities and S-corporations in particular before you make that election. You want to make sure that you make the election for the right year to ensure that you don't end up costing yourself more money by organizing as a S-corporation too early.

You can get an idea of how complex the taxes become when you file as a S-corporation by looking that the tax return that the S-corporation has to file, the Form 1120-S and the related instructions. Most people operating as a S-corporation need to hire a tax pro to handle the return and may also need to hire an accountant (not necessarly a full time accountant) to maintain the books and records properly.

Note that earning money from a business you operate may reduce or eliminate the Social Security disability benefits you are receiving.

 

[Tax Counsel]

I'm not entirely sure I understand your questions. You can form a corporation at any time of the year, and you can take a salary from the corporation.

While a corporation may be formed at any time of the year, the election with the IRS for S-corporation tax treatment must be filed no later than 2 months and 15 days after the start of the corporation's tax year (March 15 for most businesses) in which the election is to become effective.

 

[Vincent]

Yes, it is too late to make the S-corporation election for 2024. That had to be done no later than March 15. You may file now to make that election for 2025 and the deadline to do that is March 15, 2025. See Form 2553 and the related instructions to see what is required to make the election.

You are operating a sole proprietor now. You'd need to first form a LLC or a corporation and typically it's best to just do that in the state in which you live and conduct the business. You should have a business attorney for that to draft the organizational documents you need and for filing the information the state requires. The LLC is a more flexible form of business, but you may want to discuss with a business attorney what the differences are and which one would best suit you. You want to also learn about the costs of operating as a LLC or corporation. They'll be more than operating as a sole proprietor if you do everything for the LLC or corporation that state law requires.

Bear in mind that the S-corporation won't save you anything in income tax. It can save you some money in FICA taxes (Social Security, Medicare, and Medicaid taxes) if a reasonable salary for your work is less than the income the business brings in. When all the income from the business is from your own personal services it's very hard to make the argument that a reasonable salary is less than you are bringing in until you are earning significantly more than you could hire someone unrelated to you to do ALL the work you do for the business, including the business management, etc.

Typically when you reach that point, the you are earning more than the earnings cap for Social Security and Medicare taxes. That means that most S-corporation owners only save the 2.9% Medicaid tax, and that savings needs to be more than the extra costs associated with a S-corporation to make that worthwhile. I strongly recommend you see a tax professional (enrolled agent, CPA, or tax attorney) familiar with the taxation of business entities and S-corporations in particular before you make that election. You want to make sure that you make the election for the right year to ensure that you don't end up costing yourself more money by organizing as a S-corporation too early.

You can get an idea of how complex the taxes become when you file as a S-corporation by looking that the tax return that the S-corporation has to file, the Form 1120-S and the related instructions. Most people operating as a S-corporation need to hire a tax pro to handle the return and may also need to hire an accountant (not necessarly a full time accountant) to maintain the books and records properly.

Note that earning money from a business you operate may reduce or eliminate the Social Security disability benefits you are receiving.

Thank you for a very detailed response and examples.

You make a lot of great points abd definitely bring up a lot of questions I need to ask myself. Such as is it worth it.


I appreciate all your help as always.


This not being my first post and this not being your first wonderful response.


So again, thanks for your support and advice!