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OFFICER COMPENSATION 1120

Forum|Forum|6 years ago
May 2, 2020
22 replies
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Finished an 1120. Officer had $25,000 in "compensation of officers" line 12. Where on the 1040 would I report that, if reported there? This is a C corp.

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Best answer by IRonMaN

Any work around besides going through the w-2 mess? Reporting those wages on Schedule C? They might be willing to pay the SE taxes.

In your words she "compensated herself for her services". In the world of tax, that means payroll. The only way to properly report payroll is on a W-2. Schedule C would indicate that she was an independent contractor. Kind of hard to be an independent contractor when you own the business.

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TaxGuyBill

@mvp2885 wrote:
Finished an 1120. Officer had $25,000 in "compensation of officers" line 12.

If you finished the 1120, YOU need to know what that "compensation" is. In most cases, that means they received wages and have a W-2. Assuming that is the case, you enter the W-2 on the 1040.

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mvp2885Author

Level 5

This person didn't have a w-2 😕😕 She should have, but didn't. She just "drew" or "compensated" herself for her services by just transferring the money from her business account to personal, and physical withdrawing money from her account.

IRonMaN

Level 15

Sounds you just found some extra work to keep you busy. Time to prepare a W-2 and 4 quarters of payroll tax returns. Tell your client to wait for those late payment and maybe late filing penalties to come in. Some people really should be schedule Cs instead of corporations.

Slava Ukraini!

FREDW21901

Level 3

You might consider treating the amount taken as a loan to stockholder rather than compensation. Then in a future year either just pay back loan and if more cash needed put yourself on larger payroll and use part of net to repay loan.

Probably no effect on total taxes in either year. Main reason to fix on books for 2019 is to avoid legal liability issue of corporate veil having been pierced by using corporate funds for personal expenses.

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TaxGuyBill

@FREDW21901 wrote:
You might consider treating the amount taken as a loan to stockholder rather than compensation. Then in a future year either just pay back loan and if more cash needed put yourself on larger payroll and use part of net to repay loan.
Probably no effect on total taxes in either year. Main reason to fix on books for 2019 is to avoid legal liability issue of corporate veil having been pierced by using corporate funds for personal expenses.

While that may be easier, it isn't correct.

The person is REQUIRED to take "reasonable compensation". The OP specifically said it was for compensation, so the intent was for compensation, not a loan. You can't 'invent' things just because it is easier.

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Anonymous

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IRonMaN

Level 15

"Similar situation. If CPA recommends using a 1099 for owners compensation for a single person s-Corp, is the CPA liable for this mistake?"

Hopefully the CPA has his professional liability policy paid up to date.

If owners comp is listed on 1120 line 7 and then on schedule C, how is this classified?

The question can't be answered since that would not be an acceptable route to prepare either return.

Slava Ukraini!

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Anonymous

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