S corp: officer had neither w2 nor 1099

[Nurcamila]

Hello. LLC is an S Corp. the officer of the LLC hasn’t been paid neither through w2 nor 1099.

I am filing 1040 and I put the company profits in schedule SE : adjustments worksheet: part II: non farm income. Otherwise the individuals won’t get a tax refund.

or the better option is to issue 1099 for 2022? I know there will be a penalty. But the AGI is $16,000. So there would be no taxes due.

what is the best option?

[TaxGuyBill]

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@Nurcamila wrote:

I am filing 1040 and I put the company profits in schedule SE : adjustments worksheet: part II: non farm income. Otherwise the individuals won’t get a tax refund.

what is the best option?

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Why would you put it there?  Schedule SE does not apply.  Or are you trying to falsely claim the Earned Income Credit???

If the officer/LLC member/client did not receive "compensation" from the corporation, you only enter the K-1.  You don't create false information on the 1040.

If the officer/LLC member/client DID receive "compensation" from the corporation, the corporation needs to amend the 1120-S, file late payroll forms (with penalties and interest) and file a late W-2 (with penalties).

[BobKamman]

This is a rather odd question for a "new member" to be asking on October 15.  You aren't asking about your own returns by any chance, are you?  Who prepared the 1120-S, which was due last month?

You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

But we are always willing to try to keep other practitioners out of trouble.  Even out of jail.  When you come across a radioactive return, best to get as far away from it as possible.  

[Nurcamila]

Why falsify?

The previous accountant made mistakes: 

1. Changed from disregarded entity to c corp ( claiming that the LLCs officer had no ssn). Changed from c corp to s Corp ( After getting ssn)

2. Failure to notify a client about reasonable salary for himself ( filing w2) 

everything happened within the first year of operations. 

The client’s only earnings are from the business and it is $16000. So, in fact, the family is eligible for child tax credit and earned income tax credit. However, technically they made mistakes to file w2 on time or change the tax regime.

I was searching for the way to claim a credit, I found this way from proseries article: show the earnings from S corp if w2 wasn’t filed in SE adjustments part II, non farm income. 

so I was thinking whether it could be a correct way. 

I was looking for an advice: 

file w2 and then submit 1120s 

Or 

file 2553 (to change the tax regime to disregarded entity) and file 1040 schedule c

[TaxGuyBill]

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@Nurcamila wrote:

Why falsify?

The previous accountant made mistakes: 

So, in fact, the family is eligible for child tax credit and earned income tax credit.

I was searching for the way to claim a credit, I found this way from proseries article: show the earnings from S corp if w2 wasn’t filed in SE adjustments part II, non farm income. 

I was looking for an advice: 

file w2 and then submit 1120s Or file 2553 (to change the tax regime to disregarded entity) and file 1040 schedule c

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You want to falsify because somebody else made a mistake?  REALLY?

As it stands now, no, they don't qualify for the Child Tax Credit or EIC because they don't have any wages/salary or self employment income.  But see my prior answer and ask the client if they took "compensation" or not.

That is not a correct way, and I'm horrified that Intuit would even write that.

If this is the first year of being the corporation, they MIGHT be able to "withdraw" that election, but it would need to be done today ... which means I think it is too late.  Unless the 8832 to be taxed as a C-corporation was their "initial" election, they can't change again for five years.

[IRonMaN]

"That is not a correct way, and I'm horrified that Intuit would even write that"

But did Intuit actually write that or was that some half baked ramblings of another preparer that didn't have a clue as to what day it was?

[abctax55]

2. Failure to notify a client about reasonable salary for himself ( filing w2) 

Ummm  - gotta call b/s on that statement.  The IRS *specifically* points that out in their letter accepting the S-Corp election.   Failure to read that letter ain't exactly the accountants fault.

[TaxGuyBill]

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@IRonMaN wrote:

But did Intuit actually write that or was that some half baked ramblings of another preparer that didn't have a clue as to what day it was?

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That was my first thought too, so I Googled it and Intuit DID write that (although they are only instructing the 'how' for IF somebody wants to do that).

How do I report self-employment income on a Schedule K-1 Worksheet for an S corporation?

Typically, an S corporation will issue a Form W-2 to its employees or shareholders. In some cases, they may issue a 1099-Miscellaneous, which will be linked to a Schedule C in ProSeries. If neither of these is the case and you still wish to calculate self-employment tax for income from an S corporation, you may do the following:

1. Open the Schedule SE Adjustments Worksheet.
2. Scroll down to Part II - Nonfarm Profit or (Loss).
3. On Line 6, enter the amount you would like subject to self-employment income.

https://proconnect.intuit.com/support/en-us/help-article/form-1065-schedule-k-1/entering-shareholder...

[IRonMaN]

Holy crap!😲

[PATAX]

@abctax55 you are correct it is not our obligation to inform a client about reasonable compensation. We can choose to do so if we wish to, but it is not our obligation. We have enough responsibilities and obligations already, so we don't need more. I can't even get some clients to bring in their data on time, even after begging them time after time. They do what they want to do. We are not babysitters.

[abctax55]

Oh, I do my fair share of babysitting (altho several clients in the last week have received my wrath this year for last-minute **bleep**; I'm getting too old for it)

But the OP implied the accountant should be responsible because the client couldn't be responsible reading his/her own mail from the IRS.  Nope, not buying it.

The previous accountant made mistakes: 

1. Changed from disregarded entity to c corp ( claiming that the LLCs officer had no ssn). Changed from c corp to s Corp ( After getting ssn)

2. Failure to notify a client about reasonable salary for himself ( filing w2) 

[qbteachmt]

I have a question for this: "file 2553 (to change the tax regime to disregarded entity) and file 1040 schedule c"

Was this S Corp really in business or not? If there was no intent to act as an S Corp, or as an employee of that entity, and all documented work (business performed) is between customers and your taxpayer as an individual, perhaps there is no S Corp activity at all that year. You can form a corporation and not "switch" to it; perhaps it was for a different business purpose entirely.

What you cannot do is pretend to be both a corporate entity and an individual entity at the same time for the same work. And you don't get to pick which of the requirements you like, and not comply with those you don't like.

So, you can't have met S Corp requirements if there was no payroll and you don't intend to do payroll. If there are not business contracts using the FEIN, nor any employment processing, no banking, etc, then perhaps the S Corp is still an empty shell waiting for the Sole Properietorship to transfer assets and rights to be in business, to the S Corp, or for someone to start working for the S Corp.

We don't know all the details. That's your due diligence.

Not wanting to do what should be done is no reason to try something not provided for. Your own entity doesn't prepare and issue a 1099-NEC or -MISC for the labor you did for that entity. You are not a subcontractor expense to your own business entity.

[PATAX]

@qbteachmt 👍I have to hand it to you QB when it comes to payroll related matters.

[Nurcamila]

Now imagine I called IRS today. Told them the whole story and they advised me to increase expenses so the company will be making losses and this year make a revocation and switch to disregarded entity. Otherwise they said you need to file w2 and pay penalties and fines. I was waiting 1 hour on the phone to hear that. 

[Nurcamila]

Spoiler

The due diligence is simple: it is a start up. No employees, no contractors. It should have been a disregarded entity but they were switched to c corp as they were foreigners with no ssn. 

[abctax55]

@Nurcamila   Verbal *advice* from the IRS is worth exactly as much as the paper it's written on.

In other words, completely & totally worthless.

[qbteachmt]

"The due diligence is simple: it is a start up. No employees, no contractors."

That's not true. An S Corp always has at least one employee. Whoever is doing the work of that business is the employee, even if that is a sole shareholder.

"It should have been a disregarded entity but they were switched to c corp as they were foreigners with no ssn."

"They" and "LLC" and plural, means there is more than one person? You realize how late everything is: https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election

"Now imagine I called IRS today."

Imagine? It appears that you actually did this.

"and they advised me to increase expenses so the company will be making losses"

I can't imagine the IRS advising someone to increase expense so there is a loss. If that's what you got out of the discussion, okay.