Leaderboard

Edsel, I'll cut to the chase. In at least 2 posts you've indicated a potential action of "creating a payroll in December," and in your latest post you made the decision by "weighing upsides and downsides." If by "creating" you mean to backdate a check to December to make that payroll, that would be illegal and unethical. Don't do it. I would view this action as fraudulent and unethical; a sham no different than manipulations to maximize the earned income credit. We can correct errors in classifying existing transactions that actually occurred during the year, but we shouldn't be creating transactions after the fact to arrive at a more favorable result. If by "weighing" you mean to consider an action based on the benefit to the client over the legality or ethical practices as a preparer. First and foremost, your decision should be based on law and ethics, and only when what you are considering falls within that scope should the benefit to the client be considered.

In my situation, being it was $150,000, I e-mailed my client with both situations and a blurp from the IRS publication that talks about sign -on bonus's and left it up to her to decide. Here at our office I asked around and pretty much everyone has said that if they were in that situation they would just pay the taxes so their name isn't dragged across the mud in case their name was ever brought-en up later. In my opinion, if your company has enough money to pay you a $150,000 bonus just for taking the job, they can afford to pay their half of payroll taxes.

Hopefully, his S-corporation is giving him a K-1 that will detail his distributions, as well as income and expenses. Who issued him a 1099-MISC? Does he do business as an individual as well as an employee/shareholder of his S-corp? Tell him to start payroll NOW.

I had a dream about doing taxes last night. It's that time of year folks!

You can save half the SE tax by putting it on 8919, reason code H. I don't know if the IRS gets back to the employer when you do this or not. If you're worried about losing your job... put it on sch C.

Well, now I have more questions. Does this person have any compensation on a W-2 from the S corp at all? Who issued the 1099-misc? Each year this happens, have you advised him on the ramifications of tax avoidance by circumventing tax and payroll laws? Does he have other employees misclassified as 1099-misc contractors? This may be a good read for you and as a starting point for a discussion with this client: https://bradfordtaxinstitute.com/Content/Do-Not-Defeat-Your-S-Corporation-by-Paying-Yourself-on-a-1099.aspx

I am not doing the math... how would forensically changing the distributions to payroll, with the fees you would charge, along with the penalties, interest, and other costs, compare to obtaining the QBI? This assumes the forensic payroll correction would be 100% clean, with regular payrolls meeting the freq for the state (not just a check in Dec), reasonable comp, recording of all time worked (this applies even to salaried employees in many jurisdictions). etc. This is what "gets" me... as when my customers ask for anything similar, they always want just one check in December, which does not "fly" for me. Just because an owner/shareholder is also an employee does not mean the company can treat the employee any differently as a stranger employee. No stranger employee would perform services all year for one check in Dec, even if the law allowed it.

That is true, but the limited information provided does not indicate a legitimate position taken in the past or present. Yes, we do have a responsibility to keep our clients in compliance with the tax code and and allow them the maximum tax benefits available. So if this client had actually paid himself a one time payment during the year of $128,000 in December he would have a case. However, if instead he had taken monthly distributions of $10,000, then he needs to report payroll accordingly, regardless of the QBID benefit. You have not explained how you can "conceivably can create a payroll for 2019 paying himself $128,000 in December."

Proof again not all are compliant with reporting income based on employment as wages. The Catcjh-22 is the same as always. Report it properly as wages and the employer may be upset. Report it as not wages and the employee ends up paring the employer part of the taxes, and may not have received full benefit of the wage amount, such as when retirement is a percentage of pay, and there is an employer match, proper accounting for UI wages, proper WC wages, etc. If employers would accept the fact that all tangible items given to an employee is W2... since the tangible item would not have been given if the person was not their employee.

I just got one like that today, she got a sign on bonus from the hospital for $150,000. Box 7. Oofdah!

Let's not look a gift horse in the mouth. I'm not sure why there hasn't been an update recently. Maybe the program is running as expected and there is only a need to update forms.

I saw a great article on this. The article said, for someone who wants to keep their earnings from the same company (not get fired), accept the 1099 and report accordingly. But, when they leave, amend as far back as allowed, claiming employee status, and fight for a refund of the employer amounts. Same if fired, go for UI, or injured, fight for WC.

Interesting. I'm thinking SCH C is the way to go as to not upset the apple cart. Thanks gang!

It should have been treated as wages, but since it wasn't I'd put it on Sch C. Others will disagree. That's how we are.

It depends on the size of the returns. I can open 3 small returns at a time. I can open one large and one small, but I can't open two large returns at the same time.

He probably filled out the PY return/schedule the year he moved, which was correct for that year; then, he continued that method every year since. I've seen taxpayers go to a pro when something changes, and then keep copying what the pro did on their own until the next time something changes!

Shouldn't he have been doing payroll all along? Reasonable compensation?

Tom, no problem here and agree completely with your sentiment. I've made similar statements over the years about some in our profession by saying "prostituting themselves". Same thing.

I think that is politician.

As is see it, the lesson this client will learn is that he can call it whatever he wants in order to get the best tax position from the transaction. So now 63 days after the year end, it is no longer a social security saving distribution; but a QBID producing reasonable salary, paid on the last day of the year! You are right, a reclassification is in order, but sounds like this client will only go with whatever gives him the net benefit.

The payroll W2's must have been timely filed to SSA (i.e. 1/31/2020) for it to qualify for QBI.

go to schedule D and their is tab for sale of residence. If no 1099-S issued and under the reporting amount you can skip it BUT I always report it to be on the safe side. Clients don't always bring in the 1099-s

Personally, unless there were real payroll actions taken before Dec 31, I would not create a payroll now.

I would go with zero because it is the marked as first return on the 1120S