Disaster Tax Relief for Georgia

Due to Hurricane Irma Georgia taxpayers now have until 1/31/2018 to file 2016 individual tax returns and make the 9/15/2017 and 01/16/2018 quarterly estimated tax payments. I believe this means that no late filing or late payment penalties will be imposed, but 4% interest from the original due date of 4/18/17 for 2016 federal returns on the unpaid tax will be due. Interest of 7.25% will also be charged on unpaid Georgia income tax.

Disadvantages of S Corporations

Many people set up S corporations to avoid the 15.3% self employment tax incurred by partners and sole proprietors on their net income. The IRS knows this and subjects W-2 wages of Sub S shareholders to greater scrutiny the lower they are so that strategy may not work.  The IRS says that W-2 wages must be reasonable. Another problem with lower Sub S shareholder W-2 wages is that it reduces your social security benefits when you retire since the calculation is based on your highest 35 years of self employment income and W-2 wages. Also distributions to shareholders have to be proportional to their stock ownership which may be difficult with unrelated shareholders.

Some Nondeductible Items

Old Scottish Parable-May all your income be tax exempt and all your expenses deductible.  Below is a list of nondeductible expenses: commuting, club dues, parking tickets, life insurance, political contributions, personal living expenses, funeral expenses, gambling losses, hobby losses, loss from sale of a personal residence, personal credit card interest, divorce legal fees not related to tax matters, and personal licenses and fees like a driver's license.

Penalties for Late Filing of Sub S Corporation and Partnership Tax Returns

The due date for the 2016 tax returns is 9/15/17. If you are late then the penalty is $195 per month per owner for up to 12 months. With only two shareholders or partners the maximum penalty would be $4,680 so it can really add up. The IRS added this stiff penalty several years ago to encourage speedy filing of pass through entity returns since they didn't want them to hold up the processing of regular 1040 tax returns. The penalty is assessed on the Sub S or partnership instead of the individual owner.