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Level 3
September 26, 2024
Question

Schedule C filer paying himself on a W-2

A sole proprietor pays himself on a W-2.  He is not an S corp.  How can I deduct his salary on the schedule C. 

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17 replies

Intuit Community Champion
September 26, 2024

You don't have salary as sole proprietor, so you can't deduct it. Did he also file 940- 941's 

BobKamman
Level 15
September 26, 2024

I think this question comes up here every year or so.  It's not right, but it's a solution for some small business owners who have trouble keeping up with quarterly payments.  Three weeks away from an extended due date, I would deduct it as wages and tell him not to do it again.  Either take a monthly draw at the same time he makes a monthly ES payment; or set up an LLC taxed as an S corporation.  

joe7230Author
Level 3
September 26, 2024

What line on the 

 

 

 

 

 

 

 

 

What line on the schedule C would you enter the sole proprietor's wages?  Line 37 specifically states "do not include owners wages"  Line 11 states contract labor.  Where do you recommend I enter the amount?

 

 

 

 

 

 

abctax55
Level 15
September 26, 2024

Under 'owner draw'.... which is NOT on Sch C.

The payroll reporting needs to be amended/corrected as a Sch C owner is not to be paid via W-2.

edit....

Or live dangerously/run with those scissors and follow Bob's advice.  

 

HumanKind... Be Both
abctax55
Level 15
September 26, 2024

Any retirement plan contributions involved?

HumanKind... Be Both
qbteachmt
Level 15
September 29, 2024

There is no wage deduction as an Expense. It doesn't reduce the Schedule C business income. It reduces the bank. He took his own money, in other words.

Using this as a strategy for paying in as withholding instead of estimated income tax is not the best way to be forced to make your payments. You also have the issue of the employer's share of payroll taxes paid, since that "employer" isn't entitled to payroll tax deduction as expense on the amounts.

Don't yell at us; we're volunteers
BobKamman
Level 15
September 29, 2024

@qbteachmt wrote:

You also have the issue of the employer's share of payroll taxes paid, since that "employer" isn't entitled to payroll tax deduction as expense on the amounts.


That's why the Schedule C filer can deduct half the SE tax.  Six of one, half a dozen of the other.  

qbteachmt
Level 15
September 29, 2024

Schedule SE has an adjusted rate for tax. Sched C has a business expense deduction.

Not six of one, half a dozen of the other.

Don't yell at us; we're volunteers
Intuit Community Champion
September 30, 2024

Seems like everyone is getting off topic. As stated earlier you cannot deduct owner's salary on schedule C if you want to follow IRS  instructions. If you don't want to follow their instructions that is up to you.