Scorp officer salary issue

[mikeburg]

IRS assessing preparer penalties

By the way, I do not know 1st hand, but I heard from a reliable source, this last year, IRS assessing 1120 preparer penalties on this issue. mikeburg

[Burke]

To make a correction, actually there are two officers. So it is $20,000 salary to each of them. And the profit is about $125,000 each of them. Does it make a difference whether it is sole owner or there are actually two owners? By the way, as for your last question: Does the "other distributions" include the distribution of the profit to them? If yes, they did each receive $100,000 as distribution of the profit. I was thinking the "other distributions" refer to distributions other than the profit. Please correct me if I have interpreted it incorrectly.

The fact that there are two does not make a difference, except it makes the salary lower. But the fact that "they did each receive $100K as distributions of the profit" does count as a distribution. A $20K salary and a $100K distribution is going to raise a few eyebrows and probably be recharacterized if audited.

[RightOn]

Is issuing 1099-misc to themselves an option now?

$18,000 wages
$65,000 1099-MISC non-employee compensation and they pay the self-employment tax on it.
$60,000 distribution

Will it work to solve the problem?

[Burke]

Not really. Corrected W-2's would be the way to handle this. They are treated as employees. Also, that way the SCorp would pay the employer's part of SE tax, and be able to deduct it.

[KC-CPA]

Scorp officer salary issue

In post #15 on this thread it was asked what if the officer's had no salary at all. I have a client who dropped their 2013 S Corp Return information off, its a husband and wife team, neither one of them took a salary for the S Corp. First of all, there income is minimal at $10,763 which is basically revenue of $14K with expenses of $3.2K

2014 looks about the same, no salary income of $15K and expense of $4K, For this year I should have them do a W-2 for reasonable Salary and file all the payroll forms?

What happens if they record no salary for either year 2013 and 2014?

(previous accountant set up the S Corp for them, not sure why)

[BHoffman]

Hi Roger - It's a pretty tiny return.

My feeling is this with these really small companies with no real plans/opportunities to grow big with taxable profits over what would be considered reasonable salary if they were to be hired by an unrelated party as an employee:

If an SCorp acts like a Schedule C or Partnership with no officer salary, then maybe talk to the client about reporting it like one. Sch. Cs are a lot easier for them with no payroll, no distributions in excess of basis, etc.

Same goes for Schedule C guys and Partners who take payroll checks. If they act like SCorps then maybe advise them to make the S-election.

That advice would depend on a lot of things and would vary from client to client, but you get my drift.

Just my two cents.

[Burke]

Somewhere a while back when an acquaintance was audited on this issue, the auditor supposedly told him they targeted S-Corps with over $100K gross income. And that may have been 15 years ago or more. It might be even higher now. It isn't worth their time for diddly little profits.