Accrued Wages

[Maria]

Hello,

I am preparing a C corporation tax return of 12/31/05. On 12/31/05 balance sheet, there are accrual wages payable to officers. However, since the business is not doing well, the officers are not paid during 2006. 12/31/04 accrued wages have not been paid either. The officers of the C corp. wish to keep those accruals but I feel that those accruals should be removed. My question is, how long can we carry those accruals on the tax return, until the corporation is closed?

Thanks a lot.

[veritas]

Oldjack

This one is for you.

[Unregistered]

The officers of the C corp. wish to keep those accruals but I feel that those accruals should be removed. My question is, how long can we carry those accruals on the tax return, until the corporation is closed?

I have had that many times. There is no problem with officers accrued wages on the balance sheet as they are truly owed the wages. This is common, proper, and correct balance sheet numbers and should be continued as long as the corporation owes the officer(s).

However, the officer wages are simply not deductible on the Federal 1120 until the year cash paid.

Current year officer wages become a page 4 Sch-M adjustment to balance to the balance sheet retained earnings. Think the same as the 50% T&E adjustment.

The year the wages are actually paid the 1120 takes a deduction on page 1 and the oposite is reflected on the page 4, Sch-M, as the wages are deductible even though the reversal entry on the books has zeroed them out.

[Unregistered - OldJack]

I forgot to say that the previous post was from me. OldJack.

[JG EA]

No 2 1/2 months?

However, the officer wages are simply not deductible on the Federal 1120 until the year cash paid.
...The year the wages are actually paid the 1120 takes a deduction on page 1 and the oposite is reflected on the page 4, Sch-M, as the wages are deductible even though the reversal entry on the books has zeroed them out.

They can't deduct if paid in the 1st 2 1/2 months of the next year?

[Unregistered-STILL]

Stockholder

Officer if not a stockholder can have accrued salary. I think controlling stockholders' are prevented from accruing salaries to themselves...

I am NOT Old Jack

[BOB W]

How about

..... issuing the officer(s) checks and have them redeposit the the net check(s) as a loan from officer.

Better yet, Elect S status going forward.

[Unregistered-OldJack]

Officer if not a stockholder can have accrued salary. I think controlling stockholders' are prevented from accruing salaries to themselves...

I am NOT Old Jack

Not true... the IRS only regulates/cares about deducting salaries not paid to shareholders or officers. A C-corp or S-corp can accrue any debt that has a certain sum amount determined as a liability, they just can't deduct it. It is the same as any benefit paid an officer/shareholder not deductible, it is legal, the difference is those type benefits are taxable to the officer/shareholder. Accrued salary/wages are not taxable (deductible to the Corp) to the officer/shareholder until actually paid.

OldJack

[Maria]

Accrued Wages

Thanks everybody.

Happy holidays.