S-Corporation with income during part of the year

srmeka77 · #1 (**permalink**) 09-29-2009, 11:11 AM

Dear TaxGuru,

Thanks for the useful info on the site. I read through several posts but I have little different situation.

I have a Florida LLC and elected to be taxed as S-corp for federal purposes. I understand that all the rules for S-corp would apply to me for federal tax purposes.
I put myself on the payroll and paid $5000 per month salary and paid federal and unemployment taxes. I had income till June of this year and my client don't need my services anymore. I moved on to a full time job (W-2) with another company and my LLC/S-corp has no income. My question is do I still need to continue to pay $5000/month for myself?

1. Can I just stop the payroll since I don't have any income coming in?
2. How do I show this on quarterly filings to IRS?
3. I was running my payroll myself with quick books online.
4. I still have money left in the LLC/S-corp account which I plan to pay myself as a distribution end of the year.
5. Can I continue to run payroll at a lower salary or reduced hours since my LLC/S-corp doesn't take much of my time anymore and I don't work for client anymore?

Please provide some thoughts on my situation. Appreciate your help!

TaxGuru · #2 (**permalink**) 09-29-2009, 08:51 PM

To answer your questions, here are some of my thoughts on the issues that you have expressed a concern;

1. Can I just stop the payroll since I don't have any income coming in?
Yes, you can stop the payroll anytime you want, and now would be good time since you have no more income associated with your business.

2. How do I show this on quarterly filings to IRS?
You should report a Zero payroll for the remaining payroll tax returns that are still outstanding for the tax year. Also, do not forget to file the 3rd and 4th quarter payroll tax returns along with the "Annual FUTA 940 tax return" and the Annual W-3 returns as well.

3. I was running my payroll myself with quick books online. I still have money left in the LLC/S-corp account which I plan to pay myself as a distribution end of the year. Can I continue to run payroll at a lower salary or reduced hours since my LLC/S-corp doesn't take much of my time anymore and I don't work for client anymore?
I would simply take a distribution if this amount is not significant. If it is a nominal amount say a few thousand dollars or so, I would recommend that you take a distribution. Then I would proceed and officially dissolve the S Corporation according to the rules established in Florida. I would certainly consult a Florida tax expert to assist you in this endeavor.

srmeka77 · #3 (**permalink**) 09-30-2009, 10:46 PM

Dear Taxguru,

Thank you for your response.

Quote:

Originally Posted by TaxGuru

To answer your questions, here are some of my thoughts on the issues that you have expressed a concern;

1. Can I just stop the payroll since I don't have any income coming in?
Yes, you can stop the payroll anytime you want, and now would be good time since you have no more income associated with your business.

I can continue to file zero payroll tax returns for rest of the year If I don't make any salary payments. I may make some salary payments before end of the year.

2. How do I show this on quarterly filings to IRS?
You should report a Zero payroll for the remaining payroll tax returns that are still outstanding for the tax year. Also, do not forget to file the 3rd and 4th quarter payroll tax returns along with the "Annual FUTA 940 tax return" and the Annual W-3 returns as well.

I believe you meant Annual W-2 returns??

3. I was running my payroll myself with quick books online. I still have money left in the LLC/S-corp account which I plan to pay myself as a distribution end of the year. Can I continue to run payroll at a lower salary or reduced hours since my LLC/S-corp doesn't take much of my time anymore and I don't work for client anymore?
I would simply take a distribution if this amount is not significant. If it is a nominal amount say a few thousand dollars or so, I would recommend that you take a distribution. Then I would proceed and officially dissolve the S Corporation according to the rules established in Florida. I would certainly consult a Florida tax expert to assist you in this endeavor.

I paid around 18k salary to myself out of a gross income of 50k then my income stopped and I stopped paying salary. Since I have 32k left I would like to pay another 10k in salary before end of the year and show remaining as a distribution. Is it OK to take salary again since I stopped the payroll already? Also can the salary amount vary??
Can I continue to keep the LLC/S-corp without income and continue to file zero payroll or Am I required to dissolve it if I don't have any income? I would like to continue to keep it live just in case some other opportunity arises in future for business.

Thanks again for your help!

TaxGuru · #4 (**permalink**) 10-01-2009, 07:55 AM

Regarding your latest questions,

Is it OK to take salary again since I stopped the payroll already? Also can the salary amount vary??
Please take a higher salary, say about $22k and then I would recommend that you take the balance of $10k balance as distribution. This would be consistent with the IRS rules on S corporation reasonable salary. Also, you are allowed to vary your salary amounts.

Can I continue to keep the LLC/S-corp without income and continue to file zero payroll or Am I required to dissolve it if I don't have any income?
You are allowed to keep the LLC despite Zero income and Zero payroll, there are no rules forcing you to dissolve the LLC.