Turbo Tax Business for understanding solo corp / K1 check?

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Raspberry-503
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Turbo Tax Business for understanding solo corp / K1 check?

Post by Raspberry-503 »

My wife started a small business this year. She's still in the red until she recoups startup costs, and will likely "only" make $20k profits a year after that. Her accountant recommended she sets up as an S-Corp, not an LLC.
I'd love to understand how the business taxes are calculated and the accountant is super busy and I don't see her spending much tim educating my wife (or I) on what she is doing.

Will TurboTax business help me run through basically what the accountant will do so I can help my wife understand how taxes work for her business? (I suppose it might lead to questions to the accountant but the intent is not to do the taxes ourselves instead of the accountant)
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MP123
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Re: Turbo Tax Business for understanding solo corp / K1 check?

Post by MP123 »

I'm not sure about the nature of your wife's business, but generally with only $20k in net income it wouldn't make sense to be an S-Corp or an LLC with S-Corp taxation.

S-Corp taxation works better when the owner/employee can set their reasonable compensation from the corporation well below the income that it generates. This way only their W2 compensation is subject to FICA taxes, and the rest of the business income just passes through on K1 without FICA.

But with $20k net it would be hard to set reasonable compensation any lower, and the hassles and expenses of running an S-Corp (payroll, quarterly and annual returns, etc.) would take a big chunk out of the income unless you did it all yourself.

Without knowing any more I would think a sole proprietorship would be more appropriate at this stage.

But, to answer your question, TurboTax Business will prepare the 1120S return for the S-Corp as well as the K1 form that you'll need for your personal taxes. It's not quite as user friendly as the regular TurboTax for 1040. I usually suggest people get a CPA to do their first year 1120S and then use that as a template to do their own in following years with TT if they choose. S-Corp taxation can be an area with unknown unknowns (i.e. you don't know what you don't know) and that can be a problem getting started.
FunOnABudget
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Re: Turbo Tax Business for understanding solo corp / K1 check?

Post by FunOnABudget »

I would recommend using Schedule C to get started. S Corp taxation is a lot more work. Very easy to change from Schedule C to 1120S if needed.
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Raspberry-503
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Re: Turbo Tax Business for understanding solo corp / K1 check?

Post by Raspberry-503 »

Thanks. I also don't understand why the accountant recommended she set up as an S-Corp. It's my wife's business but on the end it impacts the two of us and that's why I'd love to understand what's involved.
We'll see how this year goes but I don't know if there is a way to convert to a different structure (a simple LLC)
billaster
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Re: Turbo Tax Business for understanding solo corp / K1 check?

Post by billaster »

Raspberry-503 wrote: Sun Dec 04, 2022 9:27 pm Thanks. I also don't understand why the accountant recommended she set up as an S-Corp.
They will make more money doing your more complicated tax forms.
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