Discussion:President of an S corp as a subcontractor
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Discussion Forum Index --> Accounting Questions --> President of an S corp as a subcontractor
| 2 February 2007 | |
| I am preparing a business plan with a cash flow projection for another business. The business is an insurance agency which is an S corp. The owner is also the President of the S Corp with one other partner. He receives his income from commissions as he does not receive wages otherwise. The accountant is showing the commissions as an expense because the accountant claims that as an insurance agent, he is a subcontractor to the corporation. The accountant will issue a 1099 for the commissions.
Before I create an expense line item for this, I wanted to be sure that this was correct. | |
Bottom Line (talk|edits) said: | 2 February 2007 |
| Insurance agencies can be odd ducks but generally the IRS would expect to see salary to a shareholder of an s-corp that works in the business. | |
| 2 February 2007 | |
| Are you certain that this corporation is not ineligble for S treatment under Chapter L of the code? The agent can be a statutory employee and will get a W-2, but he will report his income on Sch C. What type of insurance is the agent selling? Too many questions to give you a direct answer...sorry :) | |
| 2 February 2007 | |
| Also, can he assign his gross insurance commissions to the S Corp or does state law state that they are his? | |
| 2 February 2007 | |
| Sandysea
The agent is selling auto, home, fire, commercial and business liability policies. He had his own agency before that was in his name. An oppurtunity arose that allowed him to partner with another agency that existed. The original agency they took over became a new agency with a new name. It is presently operating at a loss with no change in the next year that will create a profit before the end of fiscal 07. The agent that is the president is the primary agent but has no capital invested in the corporation, only his existing book of business. | |
| 2 February 2007 | |
| Kevinh5
I do not know if state law says they are his other than what his accountant is doing. The accountant is saying that the commissions are his. The accountant receives the commissions and disperses the money to him minus an agreed upon 90/10 split. | |
| 2 February 2007 | |
| This is a much-discussed topic on TA. I suggest that you search for other discussions. Generally, officer/shareholders of any corp. will be considered employees. But, it's possible that they can be independent contractors. It depends upon the facts and circumstances surrounding issues of control and relationship. In any event, the name given to compensation, such as commissions, does not determine whether the person is an employee or independent contractor. -- Larry Hess, CPA, Albuquerque, NM - Talk to me | |
AKaccountess (talk|edits) said: | 3 February 2007 |
| Don't forget the accounting issues. Also look at the rules for variable interest entities. VIE's you want to ensure you are disclosing everything you should be and/or consolidating the entities. | |
AKaccountess (talk|edits) said: | 3 February 2007 |
| Ooops, misread the question...Thought the S-Corp was making payments to another entity that the shareholder owned as well... | |
