Discussion:Solved a payroll problem - I think
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| 22 January 2007 | |
| Client is sole shareholder in S Corp. In 2005, I found out in March he didn't pay himself through payroll but took all $50,000+ of profit out of the company. Slapped him on the hand, made him issue a 1099 to himself from the company and reported self-employment on his return. Thought at least he's paying into the system, somewhat.
Of course, advised him that he needed to immediately be set up with payroll service in 2006 (I do not offer payroll services yet to anyone except my bookkeep clients). Talked to him last week - didn't do the payroll. So, what I told him was that he needed to add up what he paid himself out from the company, set up his payroll service (which he did) and tell them he paid himself X-amount of dollars last year. That way, he can pay payroll taxes by Jan 31st and be in compliance with paying himself a reasonable salary for last year. Good idea? | |
Bottom Line (talk|edits) said: | 22 January 2007 |
| Sounds ok but why did you do a 1099 to a sole owner of an s-corp in 2005? I understand you were trying to get him to pay SE tax but a 1099 is unusual. | |
| 22 January 2007 | |
| I had posted this problem last year - although I can't figure out how to link it...it's under
Discussion:S Corp Officer did NOT take salary - big trouble? ... except I got the amount wrong, he actually took out $90k. | |
| January 22, 2007 | |
| Elizabeth - To link a discussion or just about anything here, put < [[ > before the link and put < ]] > at the end of the link, without the left and right arrow signs. You can see how I linked your prior discussion by looking at "Edit this page." | |
Bottom Line (talk|edits) said: | 22 January 2007 |
| Probably the best fix for those wonderful people that don't listen and don't talk to you during the year about what's going on.
Like your pic. I'd have to be drunk to go all the way up there - the exercise - the COLD. My husband and I went to Chicago last year and loved it. We stayed in Glenview and rode the train into town each day. Never rented a car! My husband was skeptical before we went about not renting a car (and I wasn't too sure how he'd do in a big city), but by the second day we were old pros and he was convinced that not renting a car was the right thing to do. | |
| 22 January 2007 | |
| I had never heard of an officer of an S corp getting a 1099 from his own co. A K-1 yes. | |
| 22 January 2007 | |
| Yoga - He got both, except that his income was subject to se tax. I was concerned about showing a $90,000 income without an entry on "officer's compensation" which can be a red flag, and a distribution of the same amount. I wanted to atleast head off any problem with him not paying social security. And, since he's a sole shareholder with no employees, and the money the company generates is due to his own involvement (meaning no other employees), I figured this was the best possible scenario. It was confirmed after I saw that other preparers have done the same thing.
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| January 22, 2007 | |
| Keep in mind, Elizabeth, that the IRS lost $1,053 in SS tax by reporting his $90,000 income (assuming it was all wages) on a 1099 form, instead of a W-2 form. On Sch SE, assuming he deducted no expenses against the $90,000 on Sch C, he would pay 15.3% SE tax on only .9235 of the $90,000 (compared to 15.3% x $90,000, if on a W-2 form--both employer and employee shares), and then he would also deduct 1/2 of the SE tax ($6,359) as an adjustment to income, which will result in the IRS losing the tax on $6,359 at his tax rate (probably 25% to 28%, depending on his filing status, exemptions, other deductions, etc). If he is in the 25% tax bracket for the entire $6,359 deduction, the IRS lost $1,590 in income tax (in addition to the $1,053 in SS tax). | |
Bottom Line (talk|edits) said: | 22 January 2007 |
| Deb - you must be having another slow day if you had time to do all that math! :) | |
| January 22, 2007 | |
| I was going to add that I'm a little bored tonight, have been too wound up to sit around watching movies in the last two weeks, and haven't been able to get away from this site for too long at a time lately. It didn't take long to do the math, though. I did it quickly in ProSeries in my own tax file by entering $90,000 on Sch C and then looked at Sch SE and line 27 on the 1040. :)
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| 22 January 2007 | |
| Hey Deb - Right. I know, he wasn't paying in what should have been paid on a normal, salaried employee - and there was the $56 in FUTA and $500+ in state unemployment he didn't pay into. But, my reasoning, as well as others who responded to my post, was that since it was past the deadlines to pay appropriate payroll taxes, that at least I had him paying into the system somehow. Hopefully we'll never have to address this with the IRS, and since he has now reported all distributions taken in 2006 as salary, and is paying those taxes in the fourth quarter reporting period, he should be on track.
I send out emails twice a year with tax updates and tax date reminders, and you'd think that my clients would be more communicative with me! UGH! | |
| 22 January 2007 | |
| Deb - I just read your last post - this darn site is too addictive! I swear, I have been on it all day. I mean, why aren't I addicted to a more exciting website board, like snowboarding! Taxes - COME ON!!!!????
At least I'm learning something. | |
| January 22, 2007 | |
| Yea, I didn't think about the unemployment taxes when I typed that up. I hope you never have to address this with the IRS, but now you know what to expect (or what your client can expect), plus penalties and interest on the taxes that should have been paid. If audited, the IRS would most likely spread the $90,000 out over the four quarters and assess penalties and interest from the quarterly due dates. I'm wondering if the IRS will notice the reporting of all of his 2006 salary in the 4th quarter, instead of spreading it out over the four quarters. But, whatever happens, you are not at fault, since your client knew what he was supposed to do and didn't do it. So, don't lose any sleep over it! | |
| January 22, 2007 | |
| That's exactly what I've been thinking during the last two or three weeks, when I started coming here all the time. I swore to myself when I woke up this morning that I was going to sit in bed all day and watch movies. I've only watched about 15 minutes of a movie I started over a week ago! (But I did get the house swept and dusted and the wash done today.) For the last several years, I've always dreaded the beginning of tax season, so why the heck am I spending all of my "free" time here lately?
>>"At least I'm learning something" I think that's why I've been coming here so much lately. It's a good way to learn and refresh our memories about tax stuff. | |
| 22 January 2007 | |
| And on that note, I am getting off this site for today. Now I think I'll fall asleep peacefully in front of the tv. :) | |
Bottom Line (talk|edits) said: | 22 January 2007 |
| I'm still at the office doing W-2's & 1099's and chasing lost mail. | |
