Discussion:Consumer Questions: Payroll accounting, S Corp, s/h benefits

Long story short, I will do my own S Corp return for 2007 - my income did not meet expectations and it's my first and probably my only year as an S Corp. (There is currently a strong trend esp among large employers to disallow contracting through one's own S Corp.)

HERE IS THE QUESTION: ACCOUNTING FOR PAY/BENEFITS FOR 2% shareholder:

S Corp newly formed start of 2007. 1 shareholder (me) who is also the only owner and only employee.

Payroll filings done by outside service. I write all checks myself.

I use Quickbooks 2007 Premier Edition and have set up the company as a Consulting business that is typed as an S Corp inside Quickbooks.

Much searching yielded a web site that does an excellent job of clarifying in one article how to account (accrual basis, which is fine for me) for pay and benefits. However it does not show how to specially account for S Corp 2% shareholder compensation versus regular employees.

Anyone know which pay and benefit items need to be split btw employee-officers versus others? I'd like to set up books to reflect the ultimate tax return.

I prefer to keep the books aligned with the needs of the tax return and don't mind adding a few extra accounts if it helps. If I ever have to go through this exercise again, it will be my memory bank.  :-) (no small favor for my distractible brain)

(I'll put tax return questions in a separate discussion.)

DISCLOSURE: I'm brand new here, not an accountant but a software developer with an (overactive!) penchant for understanding how stuff works. This is a valuable and fairly unique public forum and I thank the host, moderator(s), and community. Just as I was about to ask my first questions, I stumbled across the thread from Jan, 2007, about separating this forum so that the riff-raff like me doesn't get in the way of you folks helping each other. I understand and sympathize with your motives there - spend plenty time on computer-related forums where newbie postings can be time-consuming to sift through. Still, as you see, I'm taking a chance that these questions will raise some interest.

I'm assuming you are an (the) officer(s) of your S corp. Your salary would go on page one, line 7 of F 1120s. Your employee wages will go either on page one, line 8 OR on page 2, Sch A, line 3 if Cost of Goods Sold(COGS)is appropriate. You can create an expense account in QB, called Officer Salary to track your wages. You can also allocate the payroll taxes associated with your salary to Officer Salary Burden, rather than keep lumped in with the payroll taxes for other employees if you really want to get detailed. I only bother with doing that if payroll is going to COGS, just to keep percentages and ratios in line. Hope this helps.

I definitely want to keep officer-only payroll items separate in the chart of accounts - think of it as building a template that a machine could process. (I plan to have Quickbooks spit out numbers that will translate easily to my S corp return lines.)

To improve my question: it revolves around how compensation is treated differently for 2% shareholders on tax return. Which of the following payroll items ultimately need to be treated separately on the tax return for 2% shareholders vs others? I will create accounts to keep them separate in QB.

1. Salary (yes, I know this must be separate)

2. FICA

3. Health insurance

4. State Unemployment insurance

5. 401(k) employer contribution

The 2% shareholder issue is is pretty much a fringe benefit issue.

1. Salary (yes, I know this must be separate) As normal 2. FICA As normal. 3. Health insurance Is included in income and FICA taxable wages for 2% shareholders. It is FUTA exempt though. 4. State Unemployment insurance Check with your state, but it should be as normal. 5. 401(k) employer contribution As normal.

Thanks, Ray. I didn't mean to imply that I thought QB could essentially do the corp return, just that I'd like to set up the accounts to assist in keeping things straight for me. I will seek some pro help, too, on the truly mysterious questions, but these questions about how comp is differentially treated for 2% shareholder seemed like more normal stuff. Notice I avoided asking about workers comp insurance.  :-)