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Level 7
April 17, 2023
Question

No S Corp Officer Salary

  • April 17, 2023
  • 4 replies
  • 29 views

I am trying to figure a way to subject an S Corp officer's K-1 profit to SE tax on his 1040. 

I thought there would be a line I could enter the profit on the SE form but there isn't.

I originally thought to enter the profit on Sch C, but then the profit would be double reported on the 1040.

Does anyone know a way to get the SE tax applied to the K-1 profit on a 1040?

Thank you. 

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4 replies

Just-Lisa-Now-
Intuit Community Champion
April 17, 2023

S-Corp profit is taxed as Ordinary Income, you wont be able to, nor should you, force SE tax on it.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
david3Author
Level 7
April 17, 2023

Ok. I discussed the officer salary issue with the TP last year and told him he needed to take a salary. He didn't do it again so I wanted to find a way for him to pay SE tax.

Oh well, I guess he lucks out again...

Thanks.

rbynaker
Level 13
April 17, 2023

@david3 wrote:

Ok. I discussed the officer salary issue with the TP last year and told him he needed to take a salary. He didn't do it again so I wanted to find a way for him to pay SE tax.

Oh well, I guess he lucks out again...

Thanks.


Disengage.  There's a huge difference between "nobody told me what I was supposed to do" and willful tax evasion.

abctax55
Level 15
April 17, 2023

That's because what you are trying to do is so very, very wrong.

Did you prepare the S-Corp return?

Were there distributions?  If not, see Bob's answer on a different thread.   Maybe a W-2 isn't needed. 

At this stage, file an extension and sort this out aka fix it later as necessary.  Payroll returns may need to be done with the resulting penalties & interest. 

There are numerous threads, and of course google, on the 'what to do' in this case.

 

HumanKind... Be Both
david3Author
Level 7
April 17, 2023

I searched for this issue and found nothing. How do I find Bob's post?

abctax55
Level 15
April 18, 2023

Here it is (pay attention to his comments regarding 'leaving the money in the S-Corp).  I'd expect him to chime in at some stage with his learned thoughts on this 😉

@BobKamman 

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/re-no-earned-income-refundable-child-tax-credit/01/262570#M140949

BUT with your new info.... that's not applicable.

As Bill says, fire the client.   I've worked with clients that screwed this up - once.  If they don't fix it going forward I disengage.  Ignoring my tax advice isn't tolerated.  

There are tax pro's who think you have no liability for just doing the F 1040; reporting what happened (i.e no payroll).  Other tax pro's disagree.   Professionally for me, no client is worth taking the risk.  YMMV

 

HumanKind... Be Both
Level 15
April 17, 2023

If the shareholder/employee received "compensation" for the work he performed, then it sounds like you should be asking how to amend the 1120-S and file the late payroll forms.

BobKamman
Level 15
April 18, 2023

SE tax is for self-employed people. Your client is not self-employed.  You are trying to pound a square K-1 into a round Schedule SE hole.  It might make you feel better, to see the client pay some of the taxes that you have to pay, but it's wrong.  It also might trigger credits, like EIC, that the client doesn't deserve.  And IRS will wonder why you helped with that. 

The leading Tax Court case on this issue seems to be from 2001, Veterinary Surgical Consultants, PC.  Note that it's the corporation that was examined and assessed, not the shareholder.  He paid tax on all the income (apparently he had maxed out on FICA already).  The officer as employee had clean hands, but he was up to his elbows, as veterinarians sometimes must do, as the only shareholder.  

Likewise, if you are being hired to prepare an income tax return, the result will be the same (generally, as they say) whether the income is on a K-1 or a W-2.  It's the preparer of the corporation return who might be in trouble, and the rest of his corporate clients should be concerned about an IRS project. But that doesn't mean you have to work for someone whose attitude about taxes is different from yours.  

If you really felt strongly about this last year, you would have told him "don't come back without a W-2 showing reasonable compensation."  Instead, you shared your opinion about what his other preparer was doing.  Seems to me, it's time to file the extension and ask him not to slam the door as he walks out with it.