Paying taxes for a new corporation and existing sole proprietorship--how to pay the least.?

Question

The existing sole proprietorship made big profits in 2006. I started a similar business in the last quarter of 06 configured as a corporation (for liability protection). I did not choose s-crop or llc--my mistake. The losses and start-up costs generated by the corp apparently do not offset the profits of the SP.
What are strategies for me at tax time? Can I dissolve the corp, and treat it as a SP for 06? Can any of the expenses be moved around as if to share the burden? Apparently this would have been the case if the new business was a SP.
HELP!

Answer 1

It is too late to dissolve for 2006. You will need to file the Corp tax returns for 2006.

Although you are supposed to elect S-Corp status by the third month, I believe you can still have the C Corp. changed to an S-Corp. C Corp may be subject to built-in gains tax upon conversion.

Speak to a professional acctg firm. If the conversion can be done, you will benefit and be able to report your S-Corp. income/losses on your individual tax return and avoid the double taxation with the C-Corp.

Answer 2

Too late to do anything for 06. Even if it was earlier a little you could do. S Corp is a separate legal entity (think about it as a person).

Can you transfer some money/assets from one person to another to get tax benefits? NO. If it was the case rich people would look for poor people to transfer some tax obligations and make money, and lower the IRS cut. It can not be done.

The same with S-Corp and YOU. It does not matter that you own S-Corp. IT DOES NOT. These are tow different legal entities. You may die. The S-Corp will be still alive. The S-Corp may die (dissolve in business terms). You will be still alive.

Answer 3

The corporation and sole proprietorship are totally separate legal entities. What one does has no impact on the other. Any transfer of assets would constitute a sale and would attract whatever tax consequences would accrue in an arms-length transaction.

Any expenses of the corp cannot be used on your individual tax return since they are separate legal entities.

You cannot dissolve the corp and transfer 06 transactions to your individual return. You can dissolve it now but the business and any taxable transactions would stand as-is.

Answer 4

You might also check with your CPA about filing an S-Corp election dated when you started your corporate business. The CPA can send a letter to the IRS asking for special permission to retroactively backdate, if it was your intent to have filed an election as an S-Corp. I have seen these approved in the past.

I don't have enough information to have any idea if this will reduce your federal income taxes.