Discussion:S- Corp Salary to family
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Discussion Forum Index --> Tax Questions --> S- Corp Salary to family
Nehakamdar1 (talk|edits) said: | 1 February 2008 |
| My client has S- corp.He is full time employee with some other company & covered by their retirement plan too. Can he pay salary to his wife & set up SIMPLE IRA plan for her. He has two child & last year he issued 1099 for $ 6,150 for both them . Can he contnue doing that or pay them salary & contribute to retiremnet plan for them? | |
| 1 February 2008 | |
| as long as he is paying them a reasonable salary/pay for the work they actually do | |
Nehakamdar1 (talk|edits) said: | 2 February 2008 |
| Do he also need to take any salary from his corporation? | |
TheTinCook (talk|edits) said: | 2 February 2008 |
| If he does work for the company, then yes, he needs to take salary (read, payroll taxes and all that jazz, The kids also need to be on w-2's if they are doing work for the corp, even though they may not be subject to FICA. No 1099 for them.) | |
| 2 February 2008 | |
| TinCook, curious why you say "even though they may not be subject to FICA", why would they not be subject? As well, if the corporation issued a 1099 they're stuck with self-employment tax. You're correct, W-2 is the right/better way to go, and keeping wages below single threshold, but FICA would still have to be withheld/matched.
Circular E - "The services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse," | |
Nehakamdar1 (talk|edits) said: | 5 February 2008 |
| my client's previous cpa used to give his childerns 1099 for $ 6,150. He said that there is no need to file any tax retrun for kids.I don't how ot works?
Why kids should not file the tax retrun and any idea about this limit of $ 6,150? | |
Death&Taxes (talk|edits) said: | 5 February 2008 |
| Your previous CPA was ignoring Self-employment Tax on the 6150....self-employment tax is the mirror of Social Security and Medicare tax for those who perform services but do not have 7.65 withheld from the pay. Since this was paid through the corporation, as LJA points out above, there is no exemption for a minor child for Social Security. Perhaps the CPA put this amount in Box 3, as other income, but as such he was skating on thin ice. | |
| February 5, 2008 | |
| I think Tin cofused Sch C biz v. S corps. Paying kids out of the corp, keep the numbers low enough and you'll escape income tax, but they are subject to SE/SS. In the Sch. C, you can escape both under age 18. | |
Nehakamdar1 (talk|edits) said: | 5 February 2008 |
| I am confused what is this Sch C income? are u takling about kids? They can escape the tax if they file as sch C income ,but previos cpa never file the tax retruns for kids. Is the client can get in trobule due to that? | |
Death&Taxes (talk|edits) said: | 5 February 2008 |
| Find the 1099 forms and see which block he put the 6150 in. It should be Block 7, and your children should have paid $869 of self-employment tax. | |
| February 5, 2008 | |
| No, Nehahamdar, the kids of sole proprietors are not subject to SS tax, and if the income is low enough, no income tax either. Maybe state depending on where they are. | |
Nehakamdar1 (talk|edits) said: | 5 February 2008 |
| It's not Sole proprietor business. It's S corp of father paying temp wages to kids. | |
Death&Taxes (talk|edits) said: | 5 February 2008 |
| Exactly, all my comments are predicated on that....your preparer was sailing you too close to the wind. | |
Nehakamdar1 (talk|edits) said: | 5 February 2008 |
| If i am not wrong then he is at loss by issuing them a 1099 instead of W-2,but according to my client he has never filed tax retrun for the kids. he is issuing them 1099 since last 4 years. up to 2005 amount was $ 4,850 & in 2006 & 2007 he issued $ 6,150.??? | |
| 5 February 2008 | |
| The $6,150 is probably a combination (a very loose and incorrect) of $5,350 single SD and $800 for unearned income??? However, the fact remains that tax returns should have been filed for every year and at least self-employment tax paid. Either the preparer is not being truthful or they IRS hasn't caught up with him/her yet, which seems rather unlikely. | |
| 5 February 2008 | |
| Nehakamdar1,
Why don't you spend a couple hundred bucks to go and speak with a tax professional live, face-to-face and get the help you need. The advice you are getting here is certainly good but you need practical help and that is obvious. The $200 you save by coming here may be saved many times over by getting good help to do things properly. And remember, just because someone did something for someone you know (even though he hasn't been audited....yet) doesn't make what they did correct. The world is full of shadetree accountants. Where are the shadetree brain surgeons? | |
Death&Taxes (talk|edits) said: | 5 February 2008 |
| And print out this discussion so that if he suggests your client go over to the wrong side, you can show him this. | |
