Fiscal Year S-Corp

I was talking with another CPA last week. He said that "all" of his S-Corp have fiscal year ends rather than December year ends. This takes the pressure off of him for getting the work done during tax season. It also allows time to make changes to the shareholder's personal tax situation once the business income is known.

Does anybody else employ this strategy with their S-Corp clients?

Do you get automatic approval to change an existing 12/31 S-Corp to a fiscal year end?

I know about the Section 7519 deposit. He says he usually does an October year end in order to minimize the deposit.

He probably loves extensions, too.

No way Jose. I want it all done and out before summer begins. I have no fiscal year S's...it's a lot of work to change them. I have 3 C's with fiscals...

No. He makes them Sept or Oct fiscal year ends. He does the work in November - January before tax season gets into gear. I would rather work on my S-Corps in November than in March.

To each their own. The year end is so busy for me already...deer hunting in November, Thanksgiving, then year end billing, newsletters and organizers out, figuring year end bonuses, Christmas...and then W2 month. Busy season starts Dec. 1 for me. No way I want those returns in there.

I have had fiscal year S Corps and found them to be a pain in my butt. There is the 7519 deposit. Also-payroll reports are calendar year and calendar quarter; how about a calendar year 401(k) plan in the mix?

Having fiscal year S Corps is a huge plus. We were at a seminar and they told of us one CPA firm who was paid a premium for his business because most of his S Corp clients had a 9/30 year end.

We probably have about a dozen fiscal year S Corps, one even with a 6/30 year end. We operate our own company as a 10/31 S-Corp. If you have very profitable S Corp clients, having that extra couple of months for tax planning is huge and January is usually one of the slowest months for CPA's so you are shifting some work out of March into Dec/Jan

Thank you, Berkshire. I agree with you. For a year-round tax practice, I think it makes sense to look at fiscal years for pass-through entities. It would seem to be a win for both the practitioner and the client, except for that Section 7519 deposit.

Do you know if a pass-through entity can get automatic consent to switch from a 12/31 year-end pass to a fiscal year?

Wiles, we have always set up the fiscal year from the start so I have no experience switching an existing calendar year S Corp to say a 9/30 year end. I am not sure if I would try to convince the client to go with a short year to make the switch but I guess it is possible. Here is a good link.

http://www.thetaxadviser.com/issues/200 ... rules.html

Thank you for the link. Great article.

Do your S-Corps that elected fiscal year from the start have to make the Section 7519 deposit?

Yes, all of our fiscal year filers are making the deposit. Most do not mind but a couple of them do not like the fact that the IRS is tying up their money. But with interest rates so low, it is not like they are foregoing real investment income.

We have one client with a deposit over $500k and I worry some other advisor will try to convince them the fiscal year is not worth it. But this guy is astute and understands the whole concept.

I know a lot of CPA's are scared off of the fiscal year because they do no understand the Form 8752 annual filing but once you have done them a couple of times, they are very easy. I think it is probably takes 20 to 30 minutes for each client. The hard thing is after a good year and they just get done paying a big tax bill April 15 you probably need to tell them they have to pay in a little more on deposit by May 15

We have one client with a deposit over $500k and I worry some other advisor will try to convince them the fiscal year is not worth it. But this guy is astute and understands the whole concept.

To me, I'd hate to ever get a client away from a fiscal year because (1) they'd be paying me to do a short-year return (and depreciation is rough for years afterward) and and (2) they would have to pay taxes on 13, 14, or 15 months of income within one year.

Just encountered this 7519 for the first time.

Why would someone have to put down a deposit or pay a tax?

Appreciate if someone could share the logic.

ZL28:
The stockholders are "getting away with" delaying the reporting of, and paying taxes on, some calendar year income on their personal returns; so the Treasury wants an approximation of that amount NOW! (or at least by May 15)

I no longer have any fiscal year returns, but the one's I had: I was able to notify them of the May 15 deposit amount when the return was prepared to give them a heads up. Anyhow, in NH corporate profits can expensive, and are minimized through bonuses) so the May 15 deposits were usually minimal.

zl, back in the day, it was common for S corps to have 1/31 year ends. It pushed profits off for a year of reporting on the 1040! IRS finally ended that handy little practice with the onerous "you can if you want to, but fill out this 8 page form and mail us a big boat load of money in advance."

ZL

It is a deposit and not a tax. Let's say you have a cash basis taxpayer with a Sep 30, 2016 year end. He plans accordingly to have a lot of revenue come in for the month of October 2016. That revenue is going to be reported on the 9/30/17 S Corp return and on the individual's 2017 personal return and the taxes might not be paid until April 2018.

So the IRS is attempting to offset the benefit of the deferral by restricting your cash. They use a rate of 1% above the highest personal tax rate (40.6% this year) to make the calculation. No profits, no deposit.

The Form 8752 is very easy now, not like doing the Form 720 that we did 20 plus year ago. Probably takes no more than 15 minutes to do a Form 8752 for each client. It is a simple one page Form.

Do all fiscal year S corps have to file form 8752? I had two, a 10/31 and a 9/30. I have been preparing the form 8752 each year. This year I had a June 30 C Corp elect to be an S Corp and they retained their June 30th year end. There was a problem with one of the forms and I ended up getting a specific person in a specialized IRS department who made reference to a form 8752 not being required, but I can't seem to find anything to put in my file. Any guidance would be appreciated.

My understanding is that if you made a Section 444 election, you must file 8752 every year.

I have a new client 9/30 fiscal year S-Corp with a calendar year SH. It began in 2001 as an S-Corp and always had this fiscal year. I am his 3rd CPA in the life of this corp. He has never filed a Form 8752, nor has any of his prior CPAs mentioned this to him.

Is there any way that he could be exempt? Are there any exemptions?

I am not aware of any exemptions. I worked on a client where the form had not been filed for many years. The firm simply started preparing them. Nothing happened. But that was long ago.

I have a client with a C and an S corp both fiscal year. I know its much eaiser for the C corp to switch around. The S we filed with the form 2553 for the fiscal year status. The year end is 10/31. My client thinks it’s wonderful he’s doing me a huge favor as all can be filed before Christmas and personal taxes shortly after year-end. Been at this for ~5 years now and this year was the first time both companies filed before 12/31. I will say having those out of the way before tax season heats up has been really nice. There are complications and annoyances along with fiscal year-end. The biggest for me is filing the quarterly estimates (S corp shareholder is non-resident). The state taxing authorities can’t seem to wrap their head around the FY quarterly schedule and often we get notices that estimates were under/over paid, paid late, etc.