rich Posted March 15, 2011 Report Share Posted March 15, 2011 Client didnt set up payroll in 2010 for S-corp, Can compensation amount on Line 7 on 1120-S be treated on schedule C on personal return and pay employment taxes? Thanks in advance. Quote Link to comment Share on other sites More sharing options...
SunTaxMan Posted March 15, 2011 Report Share Posted March 15, 2011 I don't put anything on line 7 that doesn't match W-2. Quote Link to comment Share on other sites More sharing options...
SunTaxMan Posted March 15, 2011 Report Share Posted March 15, 2011 I always consider total of lines 7 & 8 need to match W-3 Quote Link to comment Share on other sites More sharing options...
Randall Posted March 15, 2011 Report Share Posted March 15, 2011 I always consider total of lines 7 & 8 need to match W-3 Same here. Get on W-2 salary for 2011. Hopefully it's not too much for 2010. Or maybe reclass distributions to 12/31/10 bonus and do the payroll late. Quote Link to comment Share on other sites More sharing options...
SunTaxMan Posted March 15, 2011 Report Share Posted March 15, 2011 Rich, You do raise an interesting possibility, if I can express the gist of your question differently. Can we take K-1 income or Distribution (all or part) and 'handle" it on the 1040 in a way to pay SE taxes, that is either by Schedule C, instead of Schedule E, page 2, or simply "forcing" an entry on Schedule SE? This would seem to be a "compliance" with the "spirit of the law," with regard to IRS, even if not the "letter of the law." But it does not address SUTA or FUTA. I would be interested in the group's comments to the "creativity." Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 15, 2011 Report Share Posted March 15, 2011 Schedule E will force SE if entered correctly AND provided you don't have any passive losses. Keep in mind that the company needs to pay payroll taxes (SUTA, FUTA) and you will avoid paying those taxes with your "creativity", which is not correct. Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 15, 2011 Report Share Posted March 15, 2011 What is there about the S-corp tax return that you don't understand? 1120S line 7 is for compensation actually paid. No salary per 941 and on the return means no salary was paid and a corporation is a separate tax entity from the shareholder. Its too late to do anything about the S-corp payroll not being done. Its too late to do anything about the shareholders distributions and taxable income classification. Its your job to prepare the tax returns according to actual facts. Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 15, 2011 Report Share Posted March 15, 2011 agree 2010 is past. move on with 2011 and have THEM do it correctly this year for payroll. if they get audited or questions just answer with what really happened in 2010 and show that the error was corrected in 2011 and now are paying wages. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 16, 2011 Report Share Posted March 16, 2011 WE had a few of these audits and as bcollen says, just show they are a new client to you and you got them on a reasonable p/r for 2011. So far 3 were no problem and on the 4th the agent appied the same pr we has for the following year for the audit year and didn't go further back. She didn't even question the amount. Quote Link to comment Share on other sites More sharing options...
rich Posted March 17, 2011 Author Report Share Posted March 17, 2011 Thats what I advised the client to start payroll from this quarter onwards but client is scared if it will be red flag for audit for not filing prior years payroll.Client is small trucking services with K1 of $20,500.To start payroll I need to file w4, I-9, Form 940,form 941 at end of quarter or has some way to know if he is eligible to file 944 instead of form 941 apart from state forms. Please correct me if I am missing anything. Again thanks to all for valuable inputs. Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 18, 2011 Report Share Posted March 18, 2011 IRS will notify them in January if they will need to file 944. Start with the 941 for this year. Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 18, 2011 Report Share Posted March 18, 2011 Thats what I advised the client to start payroll from this quarter onwards but client is scared if it will be red flag for audit for not filing prior years payroll.Client is small trucking services with K1 of $20,500.To start payroll I need to file w4, I-9, Form 940,form 941 at end of quarter or has some way to know if he is eligible to file 944 instead of form 941 apart from state forms. Please correct me if I am missing anything. Again thanks to all for valuable inputs. Tell the client that the "red flag" bull has already left the barn. The 1120s with no officer salary and significant net prrofit is all the red flag they need. If he compounds the problem by taking no corrective action the red flag continues to wave. As others have wisely advised, by getting into compliance he will likely avoid any negative consequences of the existing red flag, but if he hunkers down and does nothing, the bull will eventually charge. And you both might get gored. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 18, 2011 Report Share Posted March 18, 2011 I totally agree with JohnH, the red flag issue is a non-issue, but dealing with it is how you minimize the problem. If you can show that they are now and in future doing it right, the worst that happens is a bill for some back taxes, but you can not change the past. What the IRS wants most to see is that the problem has ended. Quote Link to comment Share on other sites More sharing options...
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