Payroll markup for shareholder?

[thomtax]

Please help - I'm having a senior moment.

100% s corp shareholder. During the year he will purchase items with the company credit card. These are going on the books as loans to shareholder. This practice was started some years ago by his CPA and has been continued in this fashion. I have read what I can about the situation, but have just confused myself. Plus, he is not in a position to repay the amounts. In fact, some of his paychecks have been skipped because of lack of cash.

I thought I knew way to go, but now am questioning myself between a couple of directions:

1. Add this amount to his payroll and put on W2. In this case, I would have to mark up the amount to account for social security and medicare.

2. Since it is not showing as an expense, there will be this much more profit passing through to the shareholder on the K1, for which he will be paying taxes.

He is taking a paycheck most of the time and is taking what should be considered an adequate amount for the IRS consideration for the amount of business he does.

All ideas will be appreciated (with the exception of just shooting myself now )

LT

[BOB W]

Treat them as Net Profit Distributions by taking the out of loans to Officers and into distributions.

[geekgirldany]

Agree with Bob take them as distributions. What I do if it goes over shareholder basis is list it on their personal return and they pay capital gains tax.

I try my best not to let loan to shareholder go over $10,000. If it does I calculate interest on the loan and try to clear it out as soon as possible as distributions.

[kpangelinan]

Treat them as Net Profit Distributions by taking the out of loans to Officers and into distributions.

Yup, this was my first thought as well.

[thomtax]

Thanks everyone - I appreciate the feedback.

LT