Hi all,
I co-own an LLC with my husband, and we've been filing a Schedule C for LLC income for since 2016. In April, we applied and got a PPP loan based on a draft 2019 Schedule C that I put together in a hurry in order to apply for the loan. We were approved and got about $20k on May 1st.
However, a tax pro I consulted in June said that, given our 2019 income, we should start filing as an S corporation (basically, file forms 2553 and 1120s by July 15). He also said that we can file 1099-MISC instead of payroll for 2019, so I assumed that we could justify our PPP loan for forgiveness using that.
A couple of weeks later, I spoke with yet another tax pro, and he said that we cannot file 1099-MISC for owner-employees, and that our best bet is to declare $0 payroll for 2019 on the 1120s and do payroll right in 2020 and moving forward. Under this scenario, I'm not sure we'd qualify for any PPP loan at all. Furthermore, I'm concerned that our PPP application could be considered fraudulent with hindsight because of this.
Our business is done in person, so the COVID lockdown has definitely lowered our 2020 revenue by a lot.
On the one hand, filing as an S-corporation would lower our tax bill for 2019 enough to make a difference in what is a pretty tough year. On the other hand, we want to make sure we follow the rules and don't do anything that could be construed as fraud later on.
For comparison, filing a Schedule C for 2019 would saddle us with a tax bill about the size of our PPP loan.
At this point, I've spoken to two different tax pros, and they each gave me different advice. It seems that handling late S-corp elections is a matter of opinion.
What do you guys think?
