Discussion Archives:S-Corp-Salary: file a (very) late 941 or issue a 1099?

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Discussion Forum Index --> Consumer Questions --> S-Corp-Salary: file a (very) late 941 or issue a 1099?

OR (talk|edits) said:

15 March 2007
I'm the un-paid, non-preparer (whew!) of a friend that needs help! He has an S-corp, sole SH/officer. In 2004: $87k net income, $26k in distrib, but NO salary! 2004 Return has not been filed yet.

Prior years, salary taken when they had income, which was on and off through several years.

2002: Net loss, no salary or distrib.

2003: $20k income, no distrib, no salary.

2004: $87k net income, $26k in distrib, but NO salary! Return has not been filed yet.

2005: $20k salary & 2006: $30k salary

Should I suggest they file a (very late) 941 in 2004 and incur the penalties or do a late 1099? They have enough est taxes pd to cover the SE on a 1099 on the 1040, but I'm concerned about salary taken in previous years. I think they could get away with a $15k-$20k salary for 2004. It that reasonable? 941 or 1099? Whaddya think?

JR1 (talk|edits) said:

March 15, 2007
While the 1099 is appealing for simplicity, the penalty maxes at 10%. Assuming the interest is the same either way, the penalty on the 1099 reporting on the 1040 would be 25% failure to file max, plus .5% per month since, plus the interest. Anyone else?

OR (talk|edits) said:

16 March 2007
Please clarify penalties. What would the 10% penalty be on? The 2004 tax returns have not been filed. There is no penalty fo failure to file the 1040, since no tax will be due on the 1040 return even if we include 1099 income.

OR (talk|edits) said:

16 March 2007
There would be a penalty on the 941, failure to pay. I think the max is 10%, plus annual interest.
  • Inserting original poster's duplicate question, asked later that day, here:

OR (talk|edits) said:

16 March 2007
Here's a good one. I am a Lic Tax Consultant, not practicing, but have done S-corp returns in the past. Non-paid, non-preparer, so have some flexibility, "creativity"

Income/Losses below are after salary, when paid. Distributions paid, are after salary.

Client started bus in 2002:

2002, Net Loss ($10,000)$00 salary,$00 distributions 2003, Net Inc $20,000, $00 salary,, $00 distrib. (repaid loan to SH) 2004, Net Inc $87,000, $00 salary!! $26,000 distrib. 2005, Net Loss($6,000),$20,000salary, $41,000 distrib. 2006, Net Inc $5,000, $30,000 salary, $2k distrib.

They have NOT filed 1120S or 1040 since 2002!! (lucky me, that's my job!)

I have thought about filing 941's as follows:

2004 w/$15k in salary (as a warm up, just starting to be profitable).

They just take the hit on late filing, late pmt penalties to avoid the $0 salary in 2004 and all the distrib being deemed salary, which I have heard could happen, but have not read about here. I know $15,000 in salary may sound low, but I have to weigh the risk of a low salary, w/all the penalties on the late 941.

Or, do I do a 1099 for the $15k, subject to SE tax?

At least they haven't filed the returns yet! Thanks for your help & suggestions!

Kevinh5 (talk|edits) said:

16 March 2007
creativity should stay within the limits whether you are a paid preparer or not. The world doesn't need more nuts doing free tax returns that are wrong, giving taxpayers the idea that something is allowed.

Learn the rules, get licensed, do a good job.

Or leave.

If you were from New Hampshire, you'd understand the state motto.

  • end of insertion

Szptax (talk|edits) said:

29 March 2007
what happens if a new s corp doesn't pay the shareholder/owner a w-2 & instead pays a 1099 with the shareholder reporting it as self employment income?

Bottom Line (talk|edits) said:

30 March 2007
Lots of threads on this. Basic conclusion is better than nothing for first year but need to do payroll properly going forward.

  • and the following two posts have been moved out of a tax pro discussion that's currently (re)active:

Irisheyesrsmiln (talk|edits) said:

23 April 2008
Good Morning - On December 28, 2008, our payroll tax exceeded $100,000 for the very first time. The money was actually transferred to the bank we use for taxes on that day. However, with the holiday and we normally have a two day due date. The IRS has given us a large penalty and interest charge. I seem to remember reading somewhere that if there is an error made in a change of payment due dates, they will forgive that one time. I sent the IRS detailed information and the response from the IRS, "Errors in judgement not forgiven".

Blrgcpa (talk|edits) said:

23 April 2008
Profile please.

  • the remaining posts were from the original discussion that started at the very top, just a later date than the inserted consQ.

Tpacct (talk|edits) said:

5 September 2008
For those of us that have actually implemented the 1099 method in this situation, has anyone not actually issued a 1099/1096 and simply reported the amount as Officer Compensation on 1120S and as Schedule C income on 1040? What are the possible consequences of not filing the paper? What good does a formal filing of 1099/1096 do at this point?

JR1 (talk|edits) said:

September 5, 2008
Several times. Never had a problem or mail.

RoyDaleOne (talk|edits) said:

5 September 2008
I would file the returns without W-2 or 1099 if that is what real happen on these old returns.

Some of the years have no need for W2 or 1099, in my very learned opinion.

Blrgcpa (talk|edits) said:

6 September 2008
I'd file properly and do a very late W-2 and 941 for the 4th q. Then do the 1120S. Pay the penalties and be done with it. Otherwise the IRS can say that the s corp is evading p/r taxes, and that's againgst the law.
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