S-Corp and per diem to owners

[Bexar]

This is my first question to TMI. I am also a neophyte with per diem reimbursements to owners.

I work for a 1+ yr old S-Corp owned by a husband and wife team (60/40 ownership). Both are performing duties related to the company. This company provides a one-time service for customers throughout the country which requires travel to each customer’s site to complete the work. The travel includes overnight stays and various forms of transportation, including personal vehicles. The owners’ portion of the work accounts for 90% of the revenues and costs.
Total number of employees not owners: 2

Presently, one owner serves as president and takes pay in the form of a draw (owners’ equity).
The other owner is paid as a consultant (coded Consulting Fees) to the S-Corp.

Finally, they typically travel together (assume 90 % of the time for this question) and travel in the same vehicle and share lodging and meals.

All travel related expenses are purchased on credit cards that are paid by directly by company check.

The owners wish to use the per diem reimbursement schedule and charge the company what the government says is allowed (they have the rates for each state and location visited).

The questions are:
1. Can both owners charge the company the per diem rate for travel? (One is President, other is paid as a hired consultant).

2. What portion of the per diem, if allowed, is taxable as personal income? The company directly paid all of the associated credit card charges (even on personal cards they used before getting the company card). The overall actual charges paid by the company are below the per diem breakdown.

3. How is this per diem treated tax wise for the company (S-corp).

I appreciate any input and help.

[Uncle Sam]

S Corp Per Diems

Presently, one owner serves as president and takes pay in the form of a draw (owners’ equity).
The other owner is paid as a consultant (coded Consulting Fees) to the S-Corp.


This is JUST WHAT CAUSES CONTROVERY. THIS IS THE FIRST MISTAKE.

Since they both own the business and perform services - they NEED TO TAKE SALARIES.

Otherwise - the per diems won't be accepted - since they are not employees. You don't reimburse per diems to outside contractors.

[Bexar]

Followup question on S-Corp owners

As we are dealing with 2007 tax year, what would be the proper course of action to correct this activity that you pointed out was "incorrect". (taking DRAWs and CONSULTING FEES). If you could also discuss how to make the proper entries within Quickbooks 2007.


Also, new question:

Where the company paid the personal charges on the credit cards (they mixed use both business and personal), I entered those charges as DRAW(owner's equity) on the bills,

thanking you in advance for any help that is offered.

[Uncle Sam]

S Corp and per diem owners

The PROPER way to correct this - is to take the drawings and commissions - and gross them up to a gross salary with all the withholdings - file and pay the various payroll tax returns for 2007 (4th quarter), prepare W-2s and W-3 - including picking up the "personal items" that you posted to Drawings.
You should understand that with a corporation - there is no such thing as "Drawings" - that's a term that's used for unincorporated businesses for self-employed people. It doesn't exist for corporations.
So any personal items paid by the corporation should actually get picked up as salary compensation to the owner(s).

[Gretel]

Hi Bexar, welcome to the board.

Per diem is allowed for meals only, lodging always needs a receipt, in the scenario you describe and incl. all Sch. C filers and partnerships.

[JON]

Previous

poster is correct. If you are paying all expenses(including meals and ent) on credit cards what is left for per diem. Give your owners some info. 2003 "03" audit of S corps was completed and errors-esp salaries-were large. So what happenned was plan 2005 "05" enlarge the audit of S Corps and they want to change the rules. Ringold's bill had if shareholders were active in the S Corp all income W-2 and UTI were going to be subject to FICA. He is still head of the House Ways and Means. Unless there is a surprise he will be there for a long time and with a Dem for President.