Solved: Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?
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Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

I am only taking a small profit from the corporation and passing it to myself on a K-1 as ordinary income. I know I am supposed to pay myself a wage on a W-2 but the business is not that large. I would appreciate clarification on whether K-1 income counts as "claiming officer compensation" in a return.

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Level 10

Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

The answer is no.

Taxing all the income or loss to the shareholder is just part of being a "pass-through" entity.

The issue with compensation is that the IRS does not want shareholder's not taking a salary and then just making distributions to the shareholder's.  This is a hot spot with the IRS.

You just need to make sure that you do take a reasonable salary and not just make distributions.  

*A reminder that posts in a forum such as this do not constitute tax advice.*

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Level 10

Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

The answer is no.

Taxing all the income or loss to the shareholder is just part of being a "pass-through" entity.

The issue with compensation is that the IRS does not want shareholder's not taking a salary and then just making distributions to the shareholder's.  This is a hot spot with the IRS.

You just need to make sure that you do take a reasonable salary and not just make distributions.  

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

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Level 4

Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

@Rick19744 So to be crystal clear, when prompted by TT during filing, the NO radio button should be selected?

 

Also, why can TT put some instructions on that page or a reference to them at the IRS?

 

Seen this asked more than once yet there product has not been updated with instructions. TT is supposed to make things easier...not harder.

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Level 10

Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

A couple of things here:

  • This is an old question; how old not sure.  While the date reflects June 2019, that is just the date when questions from the old forum were transferred to the new forum (new software).
  • Since you are not the original poster, I would want to understand your facts before answering your question.
  • I am not an employee of TT.  Having said that, TT software does a good job of handling the issues of the vast majority or users; millions.  Are there areas that could be handled better, probably, but given the changes required as a result of the last tax act I am sure that the programmers had more than they could handle at the time.  Just sayin.
*A reminder that posts in a forum such as this do not constitute tax advice.*
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Level 4

Does passing all profits from an S-Corporation to myself as ordinary income (on a K-1) count as "claiming officer compensation" in this return?

Its not an old issue. Its relevant today.

 

Create an Scorp return. Go to file and tell me how to address the question posed about Officer Compensation.

 

I am a single member LLC who has elected Scorp tax status. I have no officers. Further Scorp and LLC pass through profits so there is no separate Officer compensation. TT should be able to determine this so I dont understand the purpose of the question during the filing phase.

 

I suspect its a feeble attempt to determine that the Managing Member was paid via W2 so that pass-through profits are then no subject to FICA and Medicare. Further, TT should have information available on that page to help filers understand.

 

Also, do me a favor, please dont defend TT of a greater number of tax code changes. This is their business and they need to be prepared with sufficient staff and resources to implement changes quickly. Hard to believe form 8995-A is still not ready given its pivotal purpose and 3/15 looming. Intuit has been quite aggravating this year with delays and a total failure to communicate with their customers. Form dates change, and they say nothing. Bugs are found and they dont confirm.

 

Business filers are just as important as regular filers. And since we have a sooner deadline should be the priority. We pay a hefty price for this product and deserve better service.

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