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    Corporation Return

    Hello, I have a client with an S Corp who did not pay herself wages at all and her income is about 70K. How do I report her income? doesn't she have to pay self-employment tax at some point?
    Thanks!

    #2
    Originally posted by Konny View Post
    Hello, I have a client with an S Corp who did not pay herself wages at all and her income is about 70K. How do I report her income? doesn't she have to pay self-employment tax at some point?
    Thanks!
    How is she taking money out of the corp for her working?

    Chris

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      #3
      Has she previously filed wages, does she have other employees - gross something up get the deposit in for the taxes and do a W-2, and the payroll taxes. The net wages are subtracted from her distributions.

      Comment


        #4
        I had a business come to me recently to have me prepare the corporate returns for 2016. The sole shareholder historically operated as a Schedule C but incorporated the business in early 2016, elected S status, and took no salary just distributions. I suspect somebody told him this was a "loophole" that will save him thousands of dollars. My advice was to recharacterize distributions before December 31 in an amount that would be reasonable for the services he rendered to the corporation then file payroll returns a W-2 and pay the employment taxes.

        He said no way and I said no thanks. That position is unreasonable and indefensible, in my opinion. No doubt some preparer will take on the engagement. The preparer better know how to defend against a preparer penalty if the IRS comes a 'callin and proposes it.

        That's a position I would never put myself in.

        Comment


          #5
          Originally posted by Konny View Post
          Hello, I have a client with an S Corp who did not pay herself wages at all and her income is about 70K. How do I report her income? doesn't she have to pay self-employment tax at some point?
          Thanks!
          On second thought, if you asking these kinds of questions... better off to tell her you don't prepare corporate returns.

          Chris

          Comment


            #6
            W-2 deadline is still january 31....

            Originally posted by Konny View Post
            Hello, I have a client with an S Corp who did not pay herself wages at all and her income is about 70K. How do I report her income? doesn't she have to pay self-employment tax at some point?
            Thanks!
            1. Facts suggest, but do not state, this is a single SH situation with no other employees.
            1a. You imply, but do not state, the "client" income is from the S Corp. As to that income only.....
            2. Facts suggest, but do not state, the S corp had income and/or profit equal to what the "client" took out of "her" S corp.
            3. W-2's are due by Jan. 31, so the Corp could issue the SH a W-2 for a reasonable amount (some might suggest $36,000 or so), and on the S corp return the K-1 to the SH would (or might) d indicate a taxable distribution of $34,000 or so (depending of course on other expenses, accelerated deprecation, etc).
            4. This is not a panic situation. Easily workable, and easy billable.
            5. The bookkeeping may be another issue, and of course, watching the deadlines is important.
            6. No comment on any possible penalties for not timely remitting withholding taxes to IRS but I suspect that is workable.
            7. Spanel may be ultimately correct but I suggest there is plenty of time to work this through. After all, it is winter.
            Last edited by mastertaxguy; 01-12-2017, 09:39 AM. Reason: added 1a
            Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.

            Comment


              #7
              Originally posted by mastertaxguy View Post
              1. Facts suggest, but do not state, this is a single SH situation with no other employees.
              1a. You imply, but do not state, the "client" income is from the S Corp. As to that income only.....
              2. Facts suggest, but do not state, the S corp had income and/or profit equal to what the "client" took out of "her" S corp.
              3. W-2's are due by Jan. 31, so the Corp could issue the SH a W-2 for a reasonable amount (some might suggest $36,000 or so), and on the S corp return the K-1 to the SH would (or might) d indicate a taxable distribution of $34,000 or so (depending of course on other expenses, accelerated deprecation, etc).
              4. This is not a panic situation. Easily workable, and easy billable.
              5. The bookkeeping may be another issue, and of course, watching the deadlines is important.
              6. No comment on any possible penalties for not timely remitting withholding taxes to IRS but I suspect that is workable.
              7. Spanel may be ultimately correct but I suggest there is plenty of time to work this through. After all, it is winter.
              I agree with all and will add you have issues with..

              Not filing/paying unemployment Fed/State
              Not Filing Quarterly payroll reports

              All the Scorp profits will flow to her with a K1 and No SE taxes are paid on the profits.. that's why its so important that working shareholders are on payroll at a reasonable salary.

              That is why I stated if you do not know the above, you need help from another preparer or let someone else do it.

              Chris

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