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Old 09-18-2019, 02:00 PM
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S-Corp

Hello,

I filing a 2017 1120-S tax return for a trucking company. They are a majority owner in an S-Corp. I am going back and amending their books so they receive a W-2 and pay payroll taxes. They have a lot of expenses they did not run through the company. Is it too late to include these in their books? They thought they could use a 1099-misc and add them on a Schedule C. Since they need to take a salary and cannot do that their AMT tax bill is huge. Any suggestions?

Could they pay themselves via a W-2 and also receive income as a Sole Proprietor? Then they could add these expenses on a Schedule C and not a 2106.

Thanks.


Last edited by Shaun22acct : 09-18-2019 at 02:05 PM.


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Old 09-19-2019, 12:14 PM
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I filing a 2017 1120-S tax return for a trucking company. They are a majority owner in an S-Corp. I am going back and amending their books so they receive a W-2 and pay payroll taxes. They have a lot of expenses they did not run through the company. Is it too late to include these in their books? ====>>Why not?? As you know, each shareholder/employee reports the S corps income and expenses based on his or her percentage of ownership on individual returns via form Sch K-1 of 1120S determining which expenses are used as deductions passed onto an individual and which are used to calculate the S-Corporation's net income. S-Corp subtracts ordinary business expenses such as rent, taxes, depreciation, advertising, interest and employee benefits provided by the business.


They thought they could use a 1099-misc and add them on a Schedule C. Since they need to take a salary and cannot do that their AMT tax bill is huge. Any suggestions?====>>no.
One of the biggest IRS rules for S Corps is that the greater than 2% shareholders MUST TAKE reasonable compensation from the S Corp as a W-2 employee; there are significant FICA/Medicare tax savings if a business files as an S Corp instead of a llp or sole proprietor, so the IRS wants to make sure they are getting their fair share of employment taxes. Unfortunately, the tax code does not give a definition of reasonable compensation, so tax pro, cpa, irsea, work with clients individually to determine their annual salary from the S Corp, so,it?s important to remember. that the greater than 2% shareholders receive W-2 compensation, NOT a 1099-MISC from their S Corp..
Could they pay themselves via a W-2 and also receive income as a Sole Proprietor? Then they could add these expenses on a Schedule C and not a 2106.====>>No. as mentioned above. Tax rule states that an officer/shareholder of a corp is considered an W2 employee ?subject to payroll taxes on remuneration paid to services performed.? Also, the Tax Court Case states that a salary cannot be in the form of shareholder distributions or 1099-MISC payments.



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Old 09-19-2019, 01:17 PM
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S-corp

So the easy way to handle this, since they have not filed yet and are an accrual based business, is to accrue the expenses? Then fix the payroll filing issue.



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Old 09-20-2019, 03:57 PM
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I think so;in common sense, as you know, Accrual basis taxpayers record items when they are earned and claim deductions when expenses are owed. Say, you are a calendar year taxpayer. You buy office supplies in Dec. 2017. You receive the supplies and the bill in Dec.2017, but you pay the bill in January 2018. However, you can deduct the expense in 2017, not in 2018 as an accrual basis taxpayer because all events have occurred to fix the fact of liability, the liability can be determined, and economic performance occurred in 2017. Collecting, reporting, and remitting payroll taxes are some of your key responsibilities when you have employees. And if you forget or downright neglect your responsibility, your s cop could receive a penalty for not paying payroll taxes.
Whatever your reason for missing your deposit deadline, not paying payroll taxes is a big deal to the IRS and other tax agencies.
For each month or partial month you are late filing Form 941, the IRS imposes a 5 % penalty, with a maximum penalty of 25 %. This penalty is a percentage of the unpaid tax due with the return. The IRS also tacks on a 0.5 %tax for each month or partial month you pay the tax late. The IRS might waive late filing penalties if you have reasonable cause for filing late.



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