Originally Posted by debbiej61
The S Corp leases equipment (used in the business) from 100% shareholder. Does the s corp give shareholder a 1099 for the lease payments paid?
By definition if 100% owner/EE provides services to the S-corp, the owner/EE, the S corp, MUST issue the owner/EE a W-2. OR the S-corp has to file its own tax return, and will give the owner/EE a Sch K-1 form which will be used to transfer the corp income to his personal return. The S corp, the owner/EE doesn't use a 1099. If the owner/EEwere audited the auditor could take this as far back as 7 years. He would then be charged the employer side FICA and Medicare, FUTA, SUTA, as well as late filing/late payment penalties for the 940, 941, and state unemployment returns. While he would be given credit for the self employment tax paid (employer side equivalent only as he receives 1099) the tax, penalties, and interest would be very costly. It would be better to put himself on payroll for a small yet reasonable amount and take the rest as distributions. It would also be less costly in the long run.
Note; He should use the W-2 approach even though it will also require the filing of FUTA and SUTA returns and payment of taxes. If he limits his wage to some small amount he can cut his cost. Ultimate benefit from taxes has never been the reason the taxes exist and must be paid. He can treat additional amounts drawn from the business as distributions and those do not require the issuance of a 1099. You get the hard part - explaining to a reluctant client why this is a better approach.