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$245 Penalty Per Month, Per Shareholder – OUCH!!!

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April 10, 2024
Author: Adam Kintigh

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Last night I had a call from clients needing help filing their 2023 tax return.  “We’re getting close to the deadline and I was hoping you could get my taxes done by April 15th?”
In discussing what needed to be done, I discovered that this couple had w-2 income, so of course they would need a personal return.  Ivan and Mary explained that they had a small online business that their CPA had set up a Corporation for in September of 2020.  My question:  Is this an S-Corp or a C-Corp?
The client explained that he wasn’t sure.  Ivan told me that he had given his CPA all the documents each year and wasn’t sure how the corporation was being taxed.  So we got out his t2022 returns and started digging for the form numbers.  It would have either been form 1120S or form 1120.
After digging, Ivan said “Adam, there are neither of those forms anywhere.”  We uncovered that his CPA formed the corporation, but was reporting all profits and losses on his personal return with a Schedule C.  The CPA formed the Corporation, but hasn’t filed a corporate return, ever.
Unfortunately, Ivan and Mary are going to be penalized $245 per shareholder, per month for tax years 2020, 2021, 2022, and 2023.  Ivan explained that he attends a very large church, and that this CPA does taxes for a lot of his congregation.  
This was an eye-opening experience.  How could the CPA miss this?  As a reminder, if you have a personal return, the deadline is April 15th.  However, if you have an S-Corp, C-Corp or Partnership, returns were due March 15th.  If you didn’t file the return and didn’t file an extension, you’re going be penalized $245 per month, per shareholder for a maximum of 12 months.
If you set up an LLC taxed as a partnership and had no profit, no loss – you need not file a return.  However, if you have a corporation – S-Corp or C-Corp, even if you didn’t conduct any business, you are still required to file a return.  
These poor people were assuming the trusted CPA from church had been filing everything appropriately.  If you failed to file, the IRS will usually allow for an abatement of penalties.  Your CPA can basically write a letter, “we didn’t know…” and the IRS will usually waive the penalties.  However, they usually only waive the penalties for one year.  
If for any reason you’re not ready file your return by the deadline, file an extension!  This gives you until September 15th for Corporations and Partnerships, and until October 15th for your personal returns.
With NCH, the state’s top business formation service, you can register your LLC in Nevada quickly and easily. Our specialists will help you choose the right entity for your company and understand why an LLC in Nevada is your best option. We’ll assist you with all necessary Nevada LLC forms, including the vital Articles of Organization, and help you comply with state regulations. In addition, we offer expert assistance with tax compliance, credit building, and payroll management. Schedule a private consultation to explore effective solutions to minimize tax liabilities and protect your wealth. Start unleashing your LLC’s full potential today with NCH. Schedule a consultation with Adam Kintigh today!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.


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