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    S Corp Office Compensation

    I am getting varied information on a deduction line item on the 1120S. It is line 7 Officer Compensation. If a 100% shareholder takes a reasonable salary of 40k, and then takes say 30k out as a "distribution" could that qualify as an expense to the company as officer compensation for 30k? Or is that a "distribution" which is not expensed by the company. Which in turn is not really included as income, but be default included since it results in a higher income figure on the K1.

    I have never used that line item for an 1120S return. So i guess the question ultimately is when is that line item used for a S corporation. My tax program has a specific line item for wages paid to shareholders. so that is where the salary paid to the shareholder is put.

    #2
    Some

    You don't say what you hear or discussed. What is the definition of 30k distribution ( for what)?

    Some info not all inclusive. Check IRS code also
    Last edited by Brad Imsdahl; 09-16-2015, 12:29 PM.
    Always cite your source for support to defend your opinion

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      #3
      Originally posted by ConnorandCo View Post
      I am getting varied information on a deduction line item on the 1120S. It is line 7 Officer Compensation. If a 100% shareholder takes a reasonable salary of 40k, and then takes say 30k out as a "distribution" could that qualify as an expense to the company as officer compensation for 30k? Or is that a "distribution" which is not expensed by the company. Which in turn is not really included as income, but be default included since it results in a higher income figure on the K1.

      I have never used that line item for an 1120S return. So i guess the question ultimately is when is that line item used for a S corporation. My tax program has a specific line item for wages paid to shareholders. so that is where the salary paid to the shareholder is put.
      The amount on line 7 and also 1125-E should match the W-2 for shareholder(s). I'm assuming you mean equity distribution which would not have any effect on the p/l, and it is not an expense. The equity distribution will show on line 7 of M2 and also on line 16 of K-1 with a code of D. Whether it is "reasonable" to take 40K as salary and 30K of distributions is an entirely different can of beans.

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        #4
        My software has the same line

        Originally posted by ConnorandCo View Post
        I am getting varied information on a deduction line item on the 1120S. It is line 7 Officer Compensation. If a 100% shareholder takes a reasonable salary of 40k, and then takes say 30k out as a "distribution" could that qualify as an expense to the company as officer compensation for 30k? Or is that a "distribution" which is not expensed by the company. Which in turn is not really included as income, but be default included since it results in a higher income figure on the K1.

        I have never used that line item for an 1120S return. So i guess the question ultimately is when is that line item used for a S corporation. My tax program has a specific line item for wages paid to shareholders. so that is where the salary paid to the shareholder is put.
        but my software also has a line for "non-shareholder employee wages", "shareholder employee wages" and "Officer Compensation". The line for Officer Compensation is used for the Officers of the Corporation (whether a shareholder or not) that are performing services and are remunerated for such services with wages. Line 7 is reserved for Officers (shareholders or not) and line 8 is for employees (shareholders or not, but not Officers).

        I think the confusion lies in the instructions to Line 7 (Form 1120S); from the IRS:
        "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

        The IRS is saying in a nice way that they may (at their discretion) re-classify distributions "and other payments" such as rents/loan repayments as wages IF the Line 7 amount does not include a "reasonable compensation" figure for the Corporation's Officers. If $40,000 is reasonable, who made the determination? How much time/effort was put into determining the salary? Is the salary of the Officers as much as the highest paid employee? Why or why not? Etc, etc, etc.
        Last edited by Brad Imsdahl; 09-16-2015, 12:29 PM.
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        Don't even think about using the information in this message!

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