Discussion:S-Corp distribution vs payroll or salary

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Discussion Forum Index --> Tax Questions --> S-Corp distribution vs payroll or salary


Jocpa (talk|edits) said:

25 March 2007
I have a client who incorporated and filed an S election in 2006. The owner was previously a sole proprietor. She is a single shareholder and took regular distributions during the year but did not treat them as payroll. The distributions do not exceed basis. Can the distributions be treated as SE income on the K-1 since no 941's were filed in 2006?

Fford54303 (talk|edits) said:

25 March 2007
I've done it that way in the 1st year of a startup(even though techically it wrong it get the the correct answer). After the 1st yr she needs to do it correctly through the 1120S.

Larry0434 (talk|edits) said:

25 March 2007
You still have time to issue a 1099. I just issue a 1099 Thursday. Because I file electronically with the IRS, the 1099s submitted to them are not due to 3-30. Issue a 1099 for the GMP, and report it accordingly as earned income.

IRS accepts 1099 but issuing W-2 is preferrable.

Jocpa (talk|edits) said:

25 March 2007
So I would treat the distribution as company expense(just not wages),she picks up net income from k-1, and total distribution as income subject to SE tax from the 1099?

JACKSON (talk|edits) said:

25 March 2007
Reduction of SE tax is one of the reasons most Sole Propreitors become S-corps why would you want to reduce this benefit by reporting all distributions on a 1099 and subject them to SE? If I did file a 1099 I would only report 50-60% of the distribuions on a 1099 and make them an expense on the return. I would also advise the client that they should have "reasonable wages" in future years.

Kevinh5 (talk|edits) said:

25 March 2007
Discussion:S Corp Owner Salary vs. Distributions

DZCPA (talk|edits) said:

25 March 2007
All dividends . Not subject to SE tax. Have client do it right with payroll next year.

Kevinh5 (talk|edits) said:

25 March 2007
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