Payments and Penalties

Bryan, greetings from a Texas CPA.

I would be happy to have you come aboard as a tax client.

Technically, the shareholder of an S corporation should be on payroll, receiving a reasonable compensation, from day one. However, what you read, that the IRS MIGHT give you a pass for the first year, is correct. So, yes, you’ll probably be alright for year 1. Of course, that is partly contingent on whether they see that you’re following the rules in subsequent years.

If you filed the S election and made it retroactive back to 2020, then 2020 was year 1, even if it was not a complete year. In this case, 2021 would be year 2 for you. So, yes, you are a whole year late in doing payroll. Being this late, the best we can do now is damage control, to mitigate the problem.

If you are interested in having a phone call to discuss issue, I can probably take your call between 7:00 AM and 9:00 AM this morning (Tuesday, January 11, 2022). Otherwise, the rest of my day is booked at the moment (although I would be available this evening after 7:00 PM). I’d be available again tomorrow (on Wednesday), after 5 PM (as I already have meetings scheduled for tomorrow). My hourly rate for purely consulting is $200.00 per hour. During the call, we can discuss your questions and possible solutions. My direct number is (210) 413-4019. I don’t round up on time. I’m more interested in helping individuals like you and bringing them on as continuing clients than charging for consulting.

You can find my CPA firm (Adam Dickreiter, CPA, PLLC) by doing a Google search. I am located in San Antonio. If you’re not in San Antonio or the surrounding area, that’s not an issue, as we can still interact from a distance.

First, congratulations on being a first-time LLC owner!

To answer your question, yes, you can pay tax on the net profit each quarter via Form 1040-ES instead of trying to estimate what your profit will be for the entire year. Your approach is perfectly reasonable and acceptable. To answer your other question, you can pay unequal quarterly payments for estimated income taxes.

Feel free to contact me if you wish to engage me to help with anything. Even though I practice as a CPA in Texas, I have clients in other states, as I do multi-state returns.

Congratulations on the sale!

As a CPA, I came across this website and joined just last week, and I just came across your question.

If you just sold an investment property in 2021, the income taxes on the capital gains are due on or by April 15, 2022.

You raise a good question. Without knowing the details of your tax situation, I can say that, in general, it is wise to make an estimated income tax payment using the 2021 Form 1040-ES for the estimated income taxes on the capital gain from the sale of the investment property as soon as possible. Why? To avoid the estimated income tax penalty that could be assessed. If applicable, that’s determined when you prepare your tax return next year. To pay in the next quarter, as you suggest, should be fine.

Also, this is assuming that the sale of the investment property was not structured as an installment sale. Additionally, this assumes that the property in question was always an investment property, never a primary residence or a rental property, so you must take the history of the property into consideration.

If you held the investment property for one year or less, you would pay tax at the same marginal tax bracket as your other ordinary income. On the other hand, if you held the investment property for more than one year, you would pay income tax at the long-term capital gains tax rate (maximum 20%).

Finally, you would need to consider if the 3.8% net investment income tax also applies to your situation.

Starting in 2014, the Internal Revenue Service plans to increase the processing fees for installment agreements and offers in compromise, in addition to other payment arrangements.
Effective January 1, 2014, processing fees for standard installment agreements will increase, Fees for direct debit installment agreements, however, will remain unchanged. Low-income fees and fee waivers will also be unchanged.
Starting January 1, 2014 the fee for entering into an installment agreement will increase from $105 to $120, according to the Federal Register. The fee for restructuring or reinstating an installment agreement will go up $5 from $45 to $50. The fee for processing an offer in compromise will rise from $150 to $186.
Under the regulations as originally proposed, the reduced fee of $43 for low-income taxpayers who request a new installment agreement would remain unchanged.

The Taxpayer Advocate Service "TAS" can help if you can’t resolve your problem with the IRS. If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on the IRS website at www.irs.gov/advocate. You can also call the toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
TAS is your voice at the IRS. The TAS job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. They offer free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own.
If you qualify for our help, They will do everything they can to get your problem resolved. You will be assigned to one advocate who will be with you at every turn. They have offices in every state, the District of Columbia, and Puerto Rico. Although TAS is independent within the IRS, the advocates know how to work with the IRS to get your problems resolved. And the services are always FREE.
As a taxpayer, you have rights that the IRS must abide by in its dealings with you. The tax toolkit at www.TaxpayerAdvocate.irs.gov can help you understand these rights.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. You can borrow the money somewhere else. You can pay your taxes with a credit card, however the merchant processing fees of approximately 3% will be your responsibility

If you know you need more than 120 days you can file Form 9465 – an Installment Agreement Request and attach this form to page 1 of your tax return. You can decide how much you want to pay the IRS monthly, but make your payments as large as possible to limit the interest and penalties that will continue to be assessed until you pay the outstanding balance in full.

YES- The IRS announced a new six month payment extension form 1127-A which gives you six more months to pay also and avoid the failure to pay penalty. This form is only available for those taxpayers who are unable to pay but were unemployed in the current year for at least 30 consecutive days during the current year or were self employed and suffered greater than a 25% reduction in business income in the current year. To qualify you must also meet certain income limitations. To request an extension of time to pay you must file this form 1127-A separately. Do not attach it to your tax return or do not attach it to form 4868, the other extension form. Payment must be paid in full by Oct 15, 20XX or you will retroactively be assessed penalties and interest.

If you can pay the IRS in less than 120 days from April 15, you should file your return and send in as much money as you can afford to send in with the return. The IRS will send you a bill every 30 days up to 120 days which at that time you will receive the dreaded certified letter saying you are out of time.