Discussion:Distribution/Owner draws for C-Corp
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Discussion Forum Index --> Advanced Tax Questions --> Distribution/Owner draws for C-Corp
Discussion Forum Index --> Tax Questions --> Distribution/Owner draws for C-Corp
Zmcaccounting (talk|edits) said: | 3 April 2009 |
| A potential client called me to help clean up his books in order to get his taxes done. He has not done his taxes from 2006 to 2008. This is a C-Corp. In reviewing the books, I noticed that on the Balance Sheet there is a distribution/owner draws account with a blance of $111,000. $9,000 withdrawn in 2006, $51,000 in 2007 & $31,000 in 2008. I questioned him about it and he said that his previous CPA asked him to pay himself by withdrawing the money and enter it in the distribution account. When I reviewed the previous tax returns, it appears that the the CPA was including the withdrawal under compensation and on the 1040 (individual tax return) she was including it as Income from business (Schedule C) and calculate SE on this amount. It appears that it was treated as consulting fees. In my opinion this should have been treated as salary and process in payroll but was not done this way. Can you please give suggestions/ideas as to how to go about dealing with this situation now? Thanks | |
Laketahoecpa (talk|edits) said: | 3 April 2009 |
| I think no one is replying to this because your in the zone of Between a Rock and a Hard Place (and maybe because you didn't fill out a profile).
You are correct that this should have been considered salary. Since this is a potential new client, you are in the position to let client know that you can only take him on as client if he's willing to file late payroll returns and pay the taxes accordingly. This will set the correct tone for your future relationship with this client. And if he doesn't want to do it, then you probably don't want him as a client. Continuing treatment of previous CPA is not an option. I'd have a hard time calling these payments dividends if the C-corp is showing zero wages for this guy. | |
| 3 April 2009 | |
| Laketahoecpa I would agree. Also, If the corporate and personal returns have not been filed yet then it would seem to be an easy fix. No amended returns needed. | |
