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Old 11-29-2017, 04:30 PM
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Questions

First time posting and thank you in advance for any help given.

I have a S Corp setup. We need to file a 2015 return (yes I know it?s late) and I?m trying to figure out if my wife is considered a passive shareholder or not. She doesn?t do any work for the corp. She works full time at another job. I have read conflicting statements on the matter. I need to pay out about $50k in income for that year. I only took about $6k in salary.


Have a few more questions but will leave it here for now.

Thank you



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Old 11-29-2017, 10:29 PM
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I have a S Corp setup. We need to file a 2015 return (yes I know it?s late) and I?m trying to figure out if my wife is considered a passive shareholder or not. She doesn?t do any work for the corp. She works full time at another job. I have read conflicting statements on the matter. ====>a husband and wife qualify as one shareholder.A passive activity is ?any activity which involves the conduct of any trade or business, and in which the taxpayer does not materially participate.? A taxpayer does not materially participate in a business unless the taxpayer is involved in the operations of the activity on a regular, continuous and substantial basis; Basically, work performed by either spouse will be considered even if the spouse does not own an interest in the activity.


NOTE:If you and your spouse are co-owners of an S-corp, the IRS will put you under closer scrutiny, increasing the chances for an audit. The IRS will look very closely at any deductions you make for business expenses that involve travel and entertainment, for example, to ensure that you and your spouse weren't just enjoying a night out on the town. If the expenses are suspect, the IRS may require that you recharacterize them as gifts rather than business expenses.

I need to pay out about $50k in income for that year. I only took about $6k in salary.=====>> As you can see, according to the IRS, employees of S-corps must be reasonably compensated for their work. To ensure this happens, distributions made to an S-corp officer are first treated as wages by the IRS until this reasonable compensation level is reached. This means that if your spouse is a co-owner, you can't decide to pay her a minimal wage if you already make enough from your own salary. Her stock distribution may be taxed as income until she reaches the reasonable compensation threshold. Determining reasonable compensation is a complicated process that looks at services, capital, training, education and bonuses. This rule can be a problem, especially if your S-corp is suffering financial difficulties and you only want to take one salary to reduce costs. In that case, your spouse shouldn't be a co-owner.



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Old 11-30-2017, 12:22 AM
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Originally Posted by Wnhough View Post
I have a S Corp setup. We need to file a 2015 return (yes I know it?s late) and I?m trying to figure out if my wife is considered a passive shareholder or not. She doesn?t do any work for the corp. She works full time at another job. I have read conflicting statements on the matter. ====>a husband and wife qualify as one shareholder.A passive activity is ?any activity which involves the conduct of any trade or business, and in which the taxpayer does not materially participate.? A taxpayer does not materially participate in a business unless the taxpayer is involved in the operations of the activity on a regular, continuous and substantial basis; Basically, work performed by either spouse will be considered even if the spouse does not own an interest in the activity.


NOTE:If you and your spouse are co-owners of an S-corp, the IRS will put you under closer scrutiny, increasing the chances for an audit. The IRS will look very closely at any deductions you make for business expenses that involve travel and entertainment, for example, to ensure that you and your spouse weren't just enjoying a night out on the town. If the expenses are suspect, the IRS may require that you recharacterize them as gifts rather than business expenses.

I need to pay out about $50k in income for that year. I only took about $6k in salary.=====>> As you can see, according to the IRS, employees of S-corps must be reasonably compensated for their work. To ensure this happens, distributions made to an S-corp officer are first treated as wages by the IRS until this reasonable compensation level is reached. This means that if your spouse is a co-owner, you can't decide to pay her a minimal wage if you already make enough from your own salary. Her stock distribution may be taxed as income until she reaches the reasonable compensation threshold. Determining reasonable compensation is a complicated process that looks at services, capital, training, education and bonuses. This rule can be a problem, especially if your S-corp is suffering financial difficulties and you only want to take one salary to reduce costs. In that case, your spouse shouldn't be a co-owner.

So even if she doesn?t perform any services for the corp she has to be paid? She works full time else where.



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Old 11-30-2017, 03:20 AM
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Originally Posted by Brandonnh View Post
So even if she doesn?t perform any services for the corp she has to be paid? She works full time else where.
No what I mean is that UNLESS she is emplopyed as a regular W2 EE, she doesn't get paid by the S corp.however, if your spouse works on a regular basis as an employee, then, you need to put her on the payroll.As an employee, she just assigns herself a ?reasonable salary? as required by the IRS.



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Old 11-30-2017, 11:48 PM
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Originally Posted by Wnhough View Post
No what I mean is that UNLESS she is emplopyed as a regular W2 EE, she doesn't get paid by the S corp.however, if your spouse works on a regular basis as an employee, then, you need to put her on the payroll.As an employee, she just assigns herself a ?reasonable salary? as required by the IRS.
Thank you.

Retained earnings.. I have to re build my 2015 taxes, QuickBooks files are just gone. So I?m using bank statements re build 2015. I do have my 2016 QuickBooks files, it shows a $19k retained earnings. How will this change my 2015 taxes?

I still pay taxes on the retained earnings but they aren?t distributed, is that correct?



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Old 12-01-2017, 01:15 AM
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Quote:
Originally Posted by Wnhough View Post
No what I mean is that UNLESS she is emplopyed as a regular W2 EE, she doesn't get paid by the S corp.however, if your spouse works on a regular basis as an employee, then, you need to put her on the payroll.As an employee, she just assigns herself a ?reasonable salary? as required by the IRS.
Thank you..

Next question(s).. my wife had purchased a truck under her personal name to be used in the business, it was used at least 50% of the time. Can we take a 179 deducation under the business? We had filled out a form for a accountability plan for expenses. Just not sure if can be taken since she wasn?t active in the business?

Retained earnings... I?m re constructing the financials for 2015 since I don?t have the QuickBooks files and need to figure out how to account for the retained earnings that show up in 2016 of $19k. I see the $19k in our 2016 QB file so I know it was from 2015. I under stand it will be taxed but not distributed, is that correct.



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