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Tax Law (Questions About Taxes)/Incorporating at the end of 2012

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Question
Hi,

I have been operating a sole proprietorship for a few years now and had a very profitable year this in 2012 so far. I was wondering if I incorporated this year (in December 2012) would profits already made would be shielded from the self-employment tax. Say I've already made $40,000 in 2012 before December 1, and I incorporate on December 1. Is all of that $40,000 subject to the self-employment tax or is there a way to retroactively use it as profit for the corporation formed December 1st.

Thanks for your help,

Mike

Answer
There is not a legal way, that I am aware of, to make it retroactive.  If things look like they are going to continue to look good you may want to consider setting up an S Corp for the start of 2013 and getting yourself on payroll via the S Corp.  Good luck!

CPA Wilmington NC

Tax Law (Questions About Taxes)

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Adam Shay, CPA

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I have an expertise in individual income tax and income tax planning. I also have experience working with small businesses (variety of entities) on both income tax and accounting needs.

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I have spent 5 years managing 15 franchised tax locations. For the past 6 months I have owned my own tax preparation and accounting firm the specializes in assisting small business and more complex individuals. Accountant Wilmington NC

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AICPA NCACPA

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MBA from the University of Maryland BS from the University of Virginia

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