SMLLC switched during year to S Corp

[David]

New client had a SMLLC business reported on Sch C in their 2007 tax return. During 2008 they switched to an S Corp.

For those of you who have had this situation, do you see a problem with filing an 1120S for all of 2008? Or is it necessary to file a Sch C for part of the year and an 1120S for the rest of the year?

Thanks.

[Terry D EA]

I think it would depend on when they changed entities. You may only have to do a short year 1120S and the remainder of the year on Sch C. I don't think it is proper to file the entire year as an S-corp unless it was an S-Corp for then entrie year.

Terry D.

[imjulier]

Form 2553 should have an effective date that they wanted and S election acceptance from IRS should have date election effective as well. Go by that.

Julie

[OldJack]

Form 2553 should have an effective date that they wanted and S election acceptance from IRS should have date election effective as well. Go by that.

Julie

Well... I have to disagree with the concept of using the effective date as determining how income and expenses are reported. If in fact there was a Sch-C business entity operating for a portion of the year it should be reported as such. For tax purposes a sole proprietorship and a corportion are two separate tax entities and income and expenses should be reported in accordance with what entity incurred the income or expense.

[kcjenkins]

New client had a SMLLC business reported on Sch C in their 2007 tax return. During 2008 they switched to an S Corp.

For those of you who have had this situation, do you see a problem with filing an 1120S for all of 2008? Or is it necessary to file a Sch C for part of the year and an 1120S for the rest of the year?

Sorry, but there really is a good reason for doing it right, even beyond just the fact that you want to do things right. A Corp is a separate entity, a legal 'being', and if you mix personal with corp, you risk what is called "piercing the corporate veil". That means it jeopardizes the very protections that he formed the S Corp to gain. So doing both returns is a legal necessity, IMHO. It's part of his cost of obtaining the benefits he formed it to get.

And, hey, it's good for your business too. Don't feel bad about charging him for two returns. He made that decision when he formed it, and he's a grown-up who understands business is business.