Sole proprietorships, Incorporating, and the IRS

[fxdonny]

>>Here is one of the things my bank currently asks for: "A Profit and Loss Statement, preferably in the form of an IRS Schedule C."<<

 

It is most likely what your CPA prepared for you is simply a Profit and Loss statement, NOT a Schedule C, and in that case, it makes sense. Though you might think they are similar, they are not the same. Hope this helps.

[cooper8168]

I give up.

 

Across the top of the 2-page form, in the upper left corner, it says in big black letters

"Schedule C (Form 1040)". The title on the top of the page in the middle says in bigger

black

letters "Profit or Loss From Business". As I have said repeatedly, I am not blind! There is

no place for a signature on the 2nd page, so I can not say if this form was included with

the forms that were sent to the IRS (chances are it wasn't, otherwise, as Casey said, I'd

probably be with Martha in West Virginia). This is why I offered the suggestion that it was

provided for my own benefit. There is nothing wrong with this.

[fxdonny]

I gave up too. In that case, I can only refer to:

 

William Casey wrote: "A CPA would NEVER file or prepare a Sched C AND a 1120S for the same business venture..."

 

This is absolutely true (unless may be the business just incorp that year). In the case that you file a 1120S and at the same time, got a Schedule C that was prepared only for you as client's copy only (not file to IRS), or only to furnish to the bank, it is not the right thing to do. Something is not right here, but I do not mean to judge you or your CPA.

 

I just want to say this, if you don't believe us, you may want to print out this forum questions and answers and show it to your CPA or other CPAs that you know when you have time, and see what they have to say about it. Other than that, I really don't have anything else to say or know what else to say. Again, not trying to put you into corner here. Just trying to offer a fair solution.

 

Thank you and happy shooting.

[bahama bruce]

As another CPA, I have to agree with the general opinion that and S corporation cannot file a schedule C. There are disregarded entities that can. For instance, a single member LLC can, as permitted under tax code, be a "disregarded entity" for tax purposes. So can a few other entities, such as 1361(b)(3) S corporations, and certain real estate investment trusts. A Qualified 1361(b)(3)S Corporations are wholly owned subsidiaries of C Corporations. Probably not applicable here.

 

So if you have an EIN, and if that EIN belongs to a C Corporation filed a federal Form 2553 to elect S Corporation status, and have subsequently failed to file form 1120s and distribute form K-1 to each shareholder, and you have INSTEAD filed a 1040 with a schedule C reporting the business activity attributable to this EIN number, you may in fact have a problem. Income attributable to an S Corporation is in fact not taxed at the corporate level, but flows thru to the owners in the same way a partnership or LLC, or LLP, or LP or any of the other flavors of partnerships would. It does this via the form K-1. The recipient (owner) of a K-1 should then be reporting this income on Schedule E of their 1040. Sometimes this will also represent self employment income (likely to be the case here) which will also force the calculation of Self Employment Tax (a sole proprietor would have the same issue).

 

There are no circumstances under which a legitimately registered C Corporation which has made appropriate election for S Corporation status for tax purposes (see, there?s another confusing distinction. The S Corp Status is for taxation - legal standing in most states would still be viewed as a plain old corporation, but that's an issue for the law folks) should ever be reporting it's activity on anything except a Form 1120S, and this information should be hitting the shareholder returns as Schedule E activity (except for some farm activity, and rental real estate... more confusion). So rather than point the finger at another CPA, I would rather assume that there is some confusion here and conclude with this:

 

Every situation deserves to be individually evaluated by a qualified professional who will take the time to understand what you do, how you do it, and what your goals and missions for the business really are. Take the time to talk to someone who is as skilled at what they do as you are at photography. And realize this. Within your chosen profession or hobby, you surely recognize that you cannot expect the same level of work from every individual who calls themselves a photographer. The guy who took the Sears course in family photos simply won't bring the same things to the table as the guy who has been at this his entire life. There are appropriate levels of skill and, unfortunately, integrity in our business as well. Find someone who understands you, the photo business, and your goals who has the appropriate mix of skill and price to accomplish what you need done. Whatever you do, make sure to find a way to enjoy it - businesses with owners stressed out by the minutia who spend all of their time working "on" their business instead of "in" their business where their true passion lies will fail.

 

Good Luck

 

Bruce

www.clarkleucht.com

[bahama bruce]

As a follow up to my post, I also meant to mention in my second paragraph that begins "SO if.." the following: On the other hand, if you have a properly elected S Corporation, but your accountant prepared a Schedule C for your banks and it was properly marked as "not filed" or "draft" and/or was accompanied by appropriate cover that explained the attached documents limitations and intended use, there may be no problem at all. Some folks in the thread have insisted or implied other financial professionals needed to listen more carefully. I would suggest they did. The catch is details. You can have the right camera, the right lenses, the right film, the right flash, etc, but if someone fails to mention the shutter speed, it is a missing detail that will cause the quality of the "big picture" (pun intended) to suffer. No one motioned the purpose of those Schedule C's until after everyone else had offered conjecture about their propriety. That's exactly why you should see someone who is a professional at what they do.

 

Another interesting item is the Mac or PC battle. It can't be one unless you look at it the same way I suggest you look at professionals. Each is best at what it does for MANY reasons. There is little dispute that for years the Mac platform has been far superior for graphics/publishing work. There is also likely to be little legitimate argument that the PC has by far the deepest market penetration, and a much wider installed base of applications. Each unique, better for some things than others. So certainly those who continue to say "Each is unique" are correct on that point. Consider this. I was just at a regional accounting technology seminar where one of the goals was for the state societies involved to gather good statistics about the prevalence of certain technologies and installed applications. Of over 1500 attendees, only 4 stated that they had any Mac experience, and only three of those were using a Mac in production in their office. So if a Mac accounting application is ultimately your choice, be prepared to have a more specialized, limited base of CPA's or financial professionals of any kind to choose from. Good or bad? That?s for you to decide. I contend it might be very good, but it might also be hurting the gene pool - their extreme industry focus might serves you to some extent but might also make them a bit out of the mainstream where things are always changing. But, each situation is unique.

 

Bruce

www.clarkleucht.com