Question:

I had been a sole proprietor for many years before recently incorporating and electing to be taxed as an S corporation. However, instead of filing my taxes as a corporation this past filing season, I filed as a sole proprietor on Schedule C. Does this filing snafu change my corporate status? If yes, how can I rescue my corporate status? Or, should I dissolve the corporation?

Answer:

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Send us an email and we’ll try to answer it for you. Due to the volume of questions we receive, we are not able to answer all questions. Questions that are selected for publication may be edited for length and clarity.If you operated as a corporation — that is, you transferred your assets to the corporation, opened checking accounts in the name of the corporation and signed documents as a corporate officer rather than as a sole proprietor, you were operating as a corporation and either need to re-file or amend your tax returns, says David Levi, a tax director with CBIZ MHM in Minneapolis.

The situation gets dicey if you operated as both a sole proprietorship and a corporation during the year, he says. You may have activities to report on your Schedule C and the S corporation return, Form 1120S. As such, you'll have to amend your Schedule C filing and file Form 1120S.

And whatever you do, avoid dissolving the corporation, as that could trigger a tax liability, says Charles A. Wry, Jr., a business attorney in Waltham, Mass. If the corporation has assets that are worth more than the corporation's tax basis in those assets, expect the IRS to come knocking, he says.