Discussion:One member LLC deducting his wages on Sch C

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Discussion Forum Index --> Tax Questions --> One member LLC deducting his wages on Sch C


Pjnieves (talk|edits) said:

26 June 2006
What's the impact from the IRS standpoint? Employment taxes on the LLC for the wages paid to member? Otherwise. what other impact on 1040 if any?

Taxref (talk|edits) said:

26 June 2006
It is improper to do so, assuming the LLC has not elected to be taxed as a corporation (in which case Sch. C would not be used at all). Potential for major problems may exist if a retirement plan is involved.

Warren (talk|edits) said:

26 June 2006
A sole member LLC should not pay wages to member if it hasnt elected to be taxed as a corporation.

Inagpurwala (talk|edits) said:

26 June 2006
Taxref and Warren:

It has not happened with my clients yet, but if Single member LLC did pay wages and issued W2, then how to correct this error after the facts. IshaqInagpurwala 18:00, 26 June 2006 (CDT)

Janakpatel (talk|edits) said:

29 June 2006
Single member LLC is a disregarded entity, is subject to self emplyment taxes on his taxable Sch C income.

JimS ME (talk|edits) said:

29 June 2006
If you have a Single member LLC, taxed as a SchC, who has been paid W-2 wages, you'll need to file amended payroll tax returns to eliminate the owner's wages and have the taxes refunded. The individual should be paying estimated taxes for the self employment income.

Mikef (talk|edits) said:

30 June 2006
I had this happen a couple years ago. ADP erroneously set it up. (FWIW, ADP does a very poor job in my opinion when setting up small employers). ADP wanted an arm and a leg to file amended payroll tax returns, so we simply showed the owners wages and payroll taxes on Schedule C, thereby reducing Schedule C profits. Coincidentally, client was later audited, and the issue never came up. In either scenario, the IRS is getting their same 15.3% payroll taxes, so no harm done. The only negative was my client had to pay unnecessary state unemployment taxes and ADP fees.

Warren (talk|edits) said:

30 June 2006
I think that if it is set up wrong and W-2 is issued you should go back and amend payroll reporting and get a refund of payroll taxes. It's a pain but I think that is the way that it should be handled. The wage reporting could affect Section 179, Section 199, pension contribution, etc.

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