Son-in-law runs the business-S Corp. Father-in-law got another friend, to become a stockholder-the three own 1/3 each. Sonny sends 2004 info a couple of weeks ago-post of the problems have been handled, father-in law went home to straightened out most. Here is the MAIN problem sonny set everyone up on payroll, but himself. He was told what he could take out as salary and nothing else, but sonny did not. So accumulating his "advances" as loans means he owes the company around $40,000-funny father in law has loaned in about $45,000. This is the second year of the business-last year a small loss and this year is a small profit, before doing anything with sonny. They did not make money this year-if sonny would have drawn as salary what he was supposed to he would have had a $45,000 salary and a loss in the corp. There are two people who want to expense sonny's problem making him pick it up SE and all on his return-also on extension. Can we??????????????
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Jon,
I have a real problem trying to follow your story. I’m not sure what your problem is. But a couple of rules come to mind.
1) You can’t accrue wages in an S corp for a shareholder who is a cash basis taxpayer. So if Sonny is supposed to take a wage but deferred it so that the money is still inside the corporation, it is treated as if it was never made. No deduction for the S corp, and no taxable income to Sonny.
2) You also cannot treat payments from an S corporation to a shareholder as self employment income. The rules are very clear that corporate officers are employees, not independent contractors of their corporations. There are also numerous court cases supporting the notion that you can’t treat payments to S corp shareholders as SE income.
I’m not sure what the problem is, but it seems to me the biggest problem has to do with family issues, not tax issues. -
Explanation
He took the money-just did not call it salary. The two other stockholders are upset-would like to force him to take it. Sonny obviously has some short comings-father-in-law will get involved for a short time. Sonny realizes his meal tickets are upset and would like to take it as compensation 2004. If we leave as advances and he takes double salary in 2005, does not accomplish what any of the three want. Accrual basis, but no accruals allowed for stockholders. Just looking for a miracle-instead of advances to stockholder...Comment
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I think you are looking for an excuse not to make him go back and re-do all the payroll tax returns for the payroll he took but never did any withholding on. Those are a pain to re-do. I'm not even sure if you can amend those things after the end of the year.
I can see why you want to call them advances. That would be the easiest thing to do. But I doubt it would pass an IRS audit. They would call it payroll and hit him with all kinds of payroll tax penalties.Comment
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Amend or File form 941
If the monies were to be payroll then you can either file the form 941 late and incur the penalties, or you can file a 941-C for an adjustment. . You have 3 years to file for adjustments (either return due date or date return was filed, whichever is later). Example year 2001 the final due date would be 4/15/02 so amended would be due by 4/15/05.
You can review the info on the 941-C form and instructions.
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