urgent...payroll tax issue


K

kimshapiro100

urgent...payroll tax issue
*******************************
My friend started a tiny business in Jan 2006. She got an investor to
put a small amount of money. It is a C Corp in California.

She was supposed to be an employee with a salary. She was so busy
...being a one woman show..that she did not take a salary. She just drew
an amount of money every month.

Now she is trying to get her act together...and get herself to be paid
like an employee and rectify her mistakes of the whole year.

What does she have to do to rectify this situation ?

What forms ?

Any penalties ?

Is it very complicated ?

Thanks
Kim
 
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P

Paul Thomas, CPA

My friend started a tiny business in Jan 2006. She got an investor to
put a small amount of money. It is a C Corp in California.

She was supposed to be an employee with a salary. She was so busy
..being a one woman show..that she did not take a salary. She just drew
an amount of money every month.

There's not an animal such as a "draw" for corporations. It's either a
repayment of the money she put in, dividends of profits (but all
shareholders should have received dividends), a loan from the company to
her, or salary.




Now she is trying to get her act together...and get herself to be paid
like an employee and rectify her mistakes of the whole year.

What does she have to do to rectify this situation ?

I'd classify the withdrawals as loans to a shareholder for starters, then
alocate some of that as salary for November and some for December. The
payroll taxes are generally due December 15th and January 15th respectively.



What forms ?

Any penalties ?

Is it very complicated ?



There's a variety of forms for federal, 8109 for the tax deposits, and the
appropriate forms for state withholding. Then quarterly reporting, Form
941, and a state unemployment report. Annual reports would be 940, W-3/W-2,
and possibly other state (and maybe local) forms/reports.

I'd suggest a local CPA or EA to help you get this straight, as well as
someone who can prepare the corporate tax return.
 

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