ILLMAS Posted April 4, 2009 Report Share Posted April 4, 2009 I have a partnership return that is composed of 4 brothers, they didn't take a salary but decided just to take money as owner's draw. The only problem is the retained earnings is negative and tax year is a lose. I recommended for them to take it as a loan and repay it, get back on the payroll and to withdrawal something in relation to their salary when profitable. The fact that they are not taking a paycheck and taking money from the business, would it be ideal to reclassify it was other compensation to officer and issue them a 1099? Thanks, Quote Link to comment Share on other sites More sharing options...
Wayne Brasch Posted April 4, 2009 Report Share Posted April 4, 2009 MAS, I guess I'm a little confused about your question. Partnerships don't have a Retained Earnings account. That is for corporations. Partnerships call it Partners' Equity. Wayne Brasch Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted April 4, 2009 Author Report Share Posted April 4, 2009 MAS, I guess I'm a little confused about your question. Partnerships don't have a Retained Earnings account. That is for corporations. Partnerships call it Partners' Equity. Wayne Brasch Sorry, it's a 1120S and not a partnership. Quote Link to comment Share on other sites More sharing options...
schirallicpa Posted April 4, 2009 Report Share Posted April 4, 2009 If they actually plan to repay, then Loan might work. Don't forget to have the loan agreement in writing with explicit terms and INTEREST. They should be taking at least a small salary. The loss on the corp would offset the W-2 - well....if they have basis....which it sounds like they don't. It may even work to their advantage to have small W-2 to show low earnings and take EIC. I have a client who has a s-corp in that situation. Gets almost half his salary back in EIC refund! He's putting the refund back into the business to build his basis back up! Quote Link to comment Share on other sites More sharing options...
Dan Posted April 4, 2009 Report Share Posted April 4, 2009 You are required to pay yourself a reasonable wage if you are the owner of an S-Corporation. This means the S-Corporation must give you a W-2 Other money can be given to you in distributions. Quote Link to comment Share on other sites More sharing options...
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