ljwalters Posted May 22, 2012 Report Share Posted May 22, 2012 If husband and wife have an s corp. and both are 50% ownership. Do they both have to take a salary? Clients both own and work in the pool cue business. Husbsand builds the cues and takes a salary. Wife does inlays but does not takes salary. how is the income to wife reported. I'm confused. also, business at a loss this year, but not always. Quote Link to comment Share on other sites More sharing options...
jainen Posted May 24, 2012 Report Share Posted May 24, 2012 >>how is the income to wife reported<< On Form W-2. 1 Quote Link to comment Share on other sites More sharing options...
OldJack Posted May 24, 2012 Report Share Posted May 24, 2012 IRS has authority to reclassify "draws/distributions or other payments to a shareholder" if the shareholder has not taken a reasonable salary for the work performed by the shareholder. If wife has taken nothing out of the S-corp, she does not have to take a salary. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted May 25, 2012 Report Share Posted May 25, 2012 >>If wife has taken nothing out of the S-corp, she does not have to take a salary.<< That's not the way I read Section 1366(e). "If an individual who is a member of the family... of one or more shareholders of an S corporation renders services for the corporation... " In other words, if the wife works there she MUST get a reasonable wage, period. Otherwise hubby could take a little salary and a great big dividend or max out FICA, etc. 1 Quote Link to comment Share on other sites More sharing options...
Randall Posted May 25, 2012 Report Share Posted May 25, 2012 By giving them both salary reported on W2, they both get Social Security creditand they both can be eligible for retirement plans. Quote Link to comment Share on other sites More sharing options...
OldJack Posted May 25, 2012 Report Share Posted May 25, 2012 >>If wife has taken nothing out of the S-corp, she does not have to take a salary.<< That's not the way I read Section 1366(e). "If an individual who is a member of the family... of one or more shareholders of an S corporation renders services for the corporation... " In other words, if the wife works there she MUST get a reasonable wage, period. Otherwise hubby could take a little salary and a great big dividend or max out FICA, etc. You read it wrong. It states making an "adjustments in the "items" taken into account by such individual or shareholders". If there are no items (payments) there is no adjustment the IRS can make. >>(e) Treatment of family group If an individual who is a member of the family (within the meaning of section 704(e)(3)) of one or more shareholders of an S corporation renders services for the corporation or furnishes capital to the corporation without receiving reasonable compensation therefor, the Secretary shall make such adjustments in the items taken into account by such individual and such shareholders as may be necessary in order to reflect the value of such services or capital.<< Quote Link to comment Share on other sites More sharing options...
ljwalters Posted May 25, 2012 Author Report Share Posted May 25, 2012 She took no income because there was no money. Corp has run at a loss for 2 years now. The economy het them hard. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted May 25, 2012 Report Share Posted May 25, 2012 Bottom line - No profit, no problem with the wages or the IRS. Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted May 29, 2012 Report Share Posted May 29, 2012 One item to add, when there is income/profit, make sure to meet the minimum pay frequency requirements for the state (if any). An owner/employee still has to be treated like any other employee. For example, in CA, employees (owner or not), with a few exceptions, must be paid at least twice a month. I hear fairly often from folks who are owner/employees paying themselves once a year, once a quarter, or something else not allowed by their state. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 12, 2012 Report Share Posted June 12, 2012 That is a good point, especially in states that are known to be aggressive over payroll taxes. They want their share, and they want it as soon as possible! Thankfully, not all states have such requirements, but if your state does, you should always warn your clients to comply. So often, owners want to wait till the end of the year, or close to it, to decide how much they can afford to take out for themselves, since owners get paid last in most small businesses. Do you have a list of states with such a requirement? Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted June 13, 2012 Report Share Posted June 13, 2012 http://www.dol.gov/w...ayday.htm#foot2 You might try this web page for a chart on the US DOL site. I make no guarantees as to accuracy. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 13, 2012 Report Share Posted June 13, 2012 Thanks, I'd never seen that link. Useful to have though. Quote Link to comment Share on other sites More sharing options...
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