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Old 01-30-2013, 08:33 PM
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Talking Do I give spouse a 1099-Misc?

I am the 100% shareholder for my S-Corporation. I have a full-time job and do not materially participate in the business. My husband is the one who performs all the work for the S-Corporation. Do I give him a 1099-Misc for or should I just report the profit on a Schedule K for myself? I figured since we can't deduct our home office expenses under the S-corporation, I could give my husband a 1099-Misc so he can deduct the home office expenses on a Schedule C and deduct the mileage from the times he had to use his personal truck as well as let subcontractors use the business truck. Someone told me to lease my home office to the S-Corporation, but wouldn't that still mean I would have to issue a 1099-MISC to myself or my husband for the rent paid and then deduct the home office expenses anyways? Thank you for the help, and sorry if I am confusing you!



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Old 01-30-2013, 09:23 PM
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“I am the 100% shareholder for my S-Corporation. I have a full-time job and do not materially participate in the business. My husband is the one who performs all the work for the S-Corporation. Do I give him a 1099-Misc for or should I just report the profit on a Schedule K for myself? “======>Don't confuse an independent contractor with a neighbor who uses a hammer and nails. An independent contractor is a professional working independently under an agreed-upon pricing or contract arrangement. The IRS has strict guidelines for independent contractors. A common area of mistake or confusion is the practice of an S-Corporation issuing its own employees or shareholders 1099s. An S-Corporation may not issue a 1099 in place of a reasonable salary to an employee. For instance, if there is a single employee in an S-Corporation, they must be paid a reasonable salary (at least quarterly), the S-Corp must pay payroll taxes on those Social Security and Medicare benefits and file the appropriate forms (including but not limited to 941s and W-2s). Failure to pay an employee properly can put the S-Corporation at risk for an audit and possible penalties by the IRS.By definition as your spouse provides services to the S-corp, you MUST issue him a W-2, NOT 1099.You might need to pay him/yoirself on a W-2, if your corp is doing well making money . but sicne your business is taxed as an S corp (either an LLC or an incorporated S corp), you will not issue 1099 as spouses of S corporation owners are considered 2% owners of the business. even if the corporation is owned entirely by you.An S-Corp shareholder does not get a 1099. These folks get a Schedule K-1, showing their portion of the income and expenses from the corporation.
“I figured since we can't deduct our home office expenses under the S-corporation, I could give my husband a 1099-Misc so he can deduct the home office expenses on a Schedule C and deduct the mileage from the times he had to use his personal truck as well as let subcontractors use the business truck.”=====>No your spouse is considered 2% owners/SH of the S corp. I guiess as long as yur biz is unincorporated SMLLC then your biz can be treated as qualified joint venture and each of you can fiel Sch C/Sch SE on your joint return instead of filing complicated form1065/sch K1of 1065.
“ Someone told me to lease my home office to the S-Corporation, but wouldn't that still mean I would have to issue a 1099-MISC to myself or my husband for the rent paid and then deduct the home office expenses anyways? “==>Correct; By law the owner/shareholder or EEs or etc. of an S-Corp MUST be on payroll and be paid a salary commensurate with the work that they perform. The IRS is claiming down hard on S-Corps that try to dodge payroll taxes by funneling the profits through as dividends.All missing payroll returns must be filed, W-2s cut, and the individual returns must be amended to reflect the W-2 income.



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Old 01-30-2013, 09:39 PM
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The business is an incorporated S-corporation. So I would issue a w2- for myself/spouse as well as a 1099-Misc for the rental of the home office to the business? Then on my personal taxes, I would do a schedule C to deduct the home office expenses from the rent received on the 1099-Misc for the business? Is that correct? I had read in another Tax book to let my husband "volunteer" for the business, and that is why I did not issue a W2 for him. That and most of the time the income was not steady so it was hard to predict if we would have any money to pay him. All in all I would say we made about $60k in profit when I ran the end of the year report. I just want to make sure I dot my "I"s and cross my "T"s.



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Old 01-30-2013, 09:55 PM
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“The business is an incorporated S-corporation. So I would issue a w2- for myself/spouse as well as a 1099-Misc for the rental of the home office to the business?”=========>No as said, you(your spouse) areNOT subject to 1099

“Then on my personal taxes, I would do a schedule C to deduct the home office expenses from the rent received on the 1099-Misc for the business? Is that correct?”==========>No you can’t file SCh C/SCh SE but ned to file 1120S/Sch K1 and 1040.
“ I had read in another Tax book to let my husband "volunteer" for the business, and that is why I did not issue a W2 for him.”=========>You need to issue W2 to him as hde is CONSIDERED as sh/owner of S corp
That and most of the time the income was not steady so it was hard to predict if we would have any money to pay him. All in all I would say we made about $60k in profit when I ran the end of the year report. I just want to make sure I dot my "I"s and cross my "T"s.”======>As said your husband us treated as a shareholder/owner of the S corp as you are 100% shaeholer/owner of S corp;please Read the previous post thoroughly



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Old 01-30-2013, 09:59 PM
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ALSOThe home office is a little more complex with an S-Corp due to rules about employees leasing home offices to employers.The most common way to handle this is to have the S-Corporation pay rent to you, the shareholder, for home office space and have you, the shareholder , claim the income on their individual return on Schedule E. So far, the net effect to shareholder is zero because ypu have rent expense on the Corporation and rental income on the Schedule E. Next you would pick up a percentage of mortgage interest and property tax on the Schedule E; however, that is already deductible on the Schedule A, so really your only real benefit would be other expenses like insurance, utilities, repairs, and maintenance.
The problem is that 280A(c)(6) stops us from being able to claim anything but mortgage interest and property tax on the Schedule E in this situation, so you use a common work around to get the deduction - set up an accountable plan and have the S-Corp reimburse the shareholder monthly for the portion of utilities and other expenses for the rented home office. That way the reimbursed expenses are claimed on the S-Corp return and no longer blocked by 280A(c)(6).
One important thing to understand is recharacterization. The rental income from the S-Corporation is ordinary income and not passive. This is only important if theyou, shareholder, havepassive activities generating losses. In other words, you cannot use the net rental income from the home office to free up unallowed passive losses on the shareholders "rental" that loses money every year.



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Old 01-30-2013, 10:17 PM
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Got it! Thank you so much for all your help! I really appreciate it. It is an awesome thing for someone with so much knowledge take the time to help the rest of us! Thanks again!



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