Sorry in advance for the long thread.
I am an individual with a w-2 job and do contracting 1099 work on the side. I've been doing this for a few years and had an accountant prepare my taxes for me for the initial several years. I was very comfortable with the reporting and withholding requirements (so I thought) after this initial period so I attempted to do my own taxes last year (2016).
My contracting business is set taxed as an S-corp and was initially set up at 50:50 split between wages and distributions in the first few years. Last year, I wanted to increase my wages to about a 75:25 wages to distributions ratio (for several reasons).
My pay from the 1099 job is rather erratic and wages were (on the advice of my accountant) estimated to be paid evenly throughout the first 10 months of the year.
Here's the problem... throughout all of last year I mistakenly reported and withheld (to federal and state agencies) amounts reflecting the smaller estimated DISTRIBUTIONS instead of wages as I was supposed to. This therefore leaves me with a significant underpayment of federal withholding (I've withheld enough for SS and medicare) throughout the year on the order of several tens of thousands of dollars.
A W-2/W-3 has already been sent reflecting the correct wage base but I am left with the discrepancy of the underpayments of withholding on quarterly forms 941.
I realize I am facing a pretty stiff penalty and interest charges but would like to inquire about how to minimize these penalties if at all possible. I know these penalties and interest charges are based on when taxes should have been paid and the longer timeframe of non-payment increases these charges. Essentially, can I fill out a form 941-x for lets say the last quarter of 2016 and report a significant increase in wages compared to the first 3 quarters? Will this raise a red flag to the IRS and possibly cause an audit? If not, what is the best method to rectify this discrepancy.
I'm meeting with my accountant in the next few days so we can get the paperwork started but I wanted to see if anyone could chime in on this issue of my boneheaded mistake. Any advice that I could bring up with my accountant would be greatly appreciated.
I am an individual with a w-2 job and do contracting 1099 work on the side. I've been doing this for a few years and had an accountant prepare my taxes for me for the initial several years. I was very comfortable with the reporting and withholding requirements (so I thought) after this initial period so I attempted to do my own taxes last year (2016).
My contracting business is set taxed as an S-corp and was initially set up at 50:50 split between wages and distributions in the first few years. Last year, I wanted to increase my wages to about a 75:25 wages to distributions ratio (for several reasons).
My pay from the 1099 job is rather erratic and wages were (on the advice of my accountant) estimated to be paid evenly throughout the first 10 months of the year.
Here's the problem... throughout all of last year I mistakenly reported and withheld (to federal and state agencies) amounts reflecting the smaller estimated DISTRIBUTIONS instead of wages as I was supposed to. This therefore leaves me with a significant underpayment of federal withholding (I've withheld enough for SS and medicare) throughout the year on the order of several tens of thousands of dollars.
A W-2/W-3 has already been sent reflecting the correct wage base but I am left with the discrepancy of the underpayments of withholding on quarterly forms 941.
I realize I am facing a pretty stiff penalty and interest charges but would like to inquire about how to minimize these penalties if at all possible. I know these penalties and interest charges are based on when taxes should have been paid and the longer timeframe of non-payment increases these charges. Essentially, can I fill out a form 941-x for lets say the last quarter of 2016 and report a significant increase in wages compared to the first 3 quarters? Will this raise a red flag to the IRS and possibly cause an audit? If not, what is the best method to rectify this discrepancy.
I'm meeting with my accountant in the next few days so we can get the paperwork started but I wanted to see if anyone could chime in on this issue of my boneheaded mistake. Any advice that I could bring up with my accountant would be greatly appreciated.