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Changing Tax year


Terry D EA

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I have a single shareholder S-Corp that each year cannot get the books done on time to get me the P&L and balance sheets. Thus, extensions are filed each year, and then the shareholder extension gets filed as well. They usually don't want to pay any estimated taxes and do not pay anything at all with the extension which results in penalties and interest. In some years, due to large income, the penalties are significant. Yes, I have been trying to get them to do things differently without much success. it took a number of years of paying late filing penalties to get the S-Corp done in a timely manner whether extension or not. 2K each year was beginning to hurt so now the S-Corp usually files by Sept 15th. All's well in the neighborhood except the individual shareholder return. So, I am looking at the possibility of changing tax years. If this S-Corp elects, let's say June 30th as a fiscal tax year. how does this change affect the shareholder? Does his tax year change as well, is there a process to go thru requiring IRS approval? Looking at form 1128, understanding the short year; etc, nothing says how the shareholder's tax year is affected. During a conversation this morning with the shareholder, I tried my best to stress the importance of getting me the S-Corp financials as early as possible and to make it a priority. Does this sound like a reasonable idea or not? 

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Tell them that they either need to pay you to keep the books up to date, or hire a third party bookkeeper that you can train and work with. And tell them that it'll be cheaper than paying all those penalties and interest and their lives will be less stressful, which is priceless.

I don't know about changing to a fiscal year for an S corp but IIRC, you need a valid business reason and/or a deposit to compensate the government for deferred revenues.

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>>>>>>Tell them that they either need to pay you to keep the books up to date, or hire a third-party bookkeeper that you can train and work with. <<<<<<

I agree totally and have already been down this road. They are using QB Enterprise, which I would like to see them get rid of but, that's not happening. I'm taking the "I told you so" attitude. Just trying to see if there is any way to help them that is not a crutch.

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I don't know if your S-corp can change to a fiscal year. (Does it have to have the same year as its shareholders?) If it does change to a fiscal year, your individual client remains on a calendar year. The only difference is that his 1040 will include the K-1 that ENDS in the calendar year.

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Thanks for the Tax Advisor Article. After much research, I don't really see an advantage to changing the tax year. If anything at all is the S-Corp making a tax payment that would as you say, defer the taxes for the client. That in and of itself, may eliminate late payment penalties but wouldn't help on the S-Corp end of getting the financials done in a timely manner. I guess it is best to wait and see what affect their proposed changes will have. Thanks to all who responded.

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@Terry D EA  You are trying to change the circumstances to enable the client to continue behaviors that they should not be continuing.   It is the behavior of the client that needs to change, and their unwillingness to do so results in penalties and interest.   It is the behavior that is causing the issue, not the circumstances.   Good choice to leave it alone.   It would have made a more complicated situation that you would be blamed for when their behavior continued to cause penalties and interest.   Some clients are just the way they are and our best efforts to help save them from themselves are futile.

Tom
Longview, TX

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