I formed an single person LLC (taxed as S-Corp) last August and due to bad advice, failed to run payroll to pay myself any income. Now, I'm not sure if I can retain all the business earnings from last year in the corp or if I can run payroll this late. Also needed to know how this impacted my ability to contribute to a SEP IRA for 2014.

ANSWER

The BIDaWIZ Team's Answer:

You can still reclassify the earnings (or at least a portion) from a shareholder distribution on the Schedule K-1 to wages by preparing a W-2, computing payroll taxes and making the associated filings. This needs to be performed as soon as possible since there could be penalties for under-withholding taxes and not filing the appropriate payroll forms. This is referenced in Internal Revenue Code (IRC) Section 1446 and IRS Publication 15.

You can still contribute to a SEP-IRA as long as you have your W-2 wages corrected. At this point, it would make sense to file an extension as the contribution period includes extensions and today is the due date. This is referenced in IRC Section 408(k)(5).

State: Georgia
References: IRS Publication 15; IRC Section 1446 & 408(k)(5)