S Corp Office Compensation

[ConnorandCo]

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.

[TAXNJ]

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

[kathyc2]

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.

[DaveinTexas]

My software has the same line

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.