Level 3

Question

Corporations

Forum|Forum|4 years ago
March 9, 2022
3 replies
22 views

My client is a real estate broker who hasn’t had any sales for several years and always has filed a return with zero activity. Last year, she received commissions from 2 sales for about $12,000, which she deposited in the corporate account. In 2021 she withdrew $5,000 from the account and in 2022, she withdrew $6,000. How do I handle this on the return?

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J

jeffmcpa2010

Level 10

C Corp or S Corp?

C

CLAUDIATRACYAuthor

Level 3

C corp

J

jeffmcpa2010

Level 10

In my opinion, The Corporation should either file the forms to report the payment as W-2 Wages, or file a 1099-Div to report the payment as a Dividend to the shareholder. (unless of course there were some prior loans from the shareholder to the corp. that were still outstanding.)

W-2 wages may be more correct, but I don't have enough information about time involved in the transactions by the owner, etc. that might help determine if the payment was for work, or more of a return on investment.

IRonMaN

Level 15

Wages and hopefully a W2 has already been filed for both years so they don’t have to be filed late now

Slava Ukraini!

M

MC82

Level 2

Hi Claudia, I will give my opinion, but like everybody said do not take it as a fact, consult with a specialist in taxes.

If your client had a C Corporation, the $12,000 deposited in year 2021, had to be declared the whole amount in 2021 on the C Corporation tax. I really think that should be done the correct way and go back and issue or correct 941's of 2021, pay the withholding amounts from the salary and issued the w-2 for the whole amount of $12,000 for year 2021( because my understanding is your client works for that money, so social sec and medicare as well as taxes should be withholding). It does not matter the year, or the way that you client withdraw the money, the fact is that the whole amount are commissions (revenue) and were earned in 2021, and should be declared and pay the taxes on 2021.

Also, it does not matter, if your client lend the money to the Corp before, the entries are revenue and needs to be declared as earnings and pay taxes. Good luck!

qbteachmt

Level 15

This is good, but not quite: "It does not matter the year, or the way that you client withdraw the money,"

Yes, especially for a C Corp, it does. Ford Corporation's employees don't get to take money whenever they want, and don't leave their own money in the corporation. This entity structure means that is the C Corp earnings. Why someone created a C Corp for this activity, would be a different discussion. Perhaps they assumed it would be Real Estate operations, including sales, ownership of property, this person has a Broker License and expected to have employees (agent, marketing, receptionist). We don't know that part.

"the fact is that the whole amount are commissions (revenue) and were earned in 2021"

For the C Corp. That is put on the 1120.

"and should be declared and pay the taxes on 2021."

And any taking she did, in each year, is Payroll. So, you have two years of payroll here.

Don't yell at us; we're volunteers

C

CLAUDIATRACYAuthor

Level 3

A FINAL UPDATE

This C-corp had not had any income since it’s inception, so the broker, who thought she knew taxes decided that she would file her own returns and just mark them with no activity! We filed a 2553 to elect to file as an S-Corp and hope that it will be approved. Since she had never consulted a tax professional, she had never received any advice from a knowledgeable person.

Thanks for all your responses and help!

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