How can I pay my tax on "Compensation of officers" on my C-Corp which I've received?

[yontida]

I'm filing my personal tax after I've filed Form 1120 last week with a 25% loss and I've put my salary on line 12 (Compensation of officers). The C-corporation did not have any employee and did not set up the payroll system due to covid. The business was run in struggle by myself and I felt getting salary paid (less that 10%) was reasonable and made more sense than zero. Upon searching for an answer I realized that "Compensation of officers" would be a red flag for avoiding social security tax through payroll system. What should I do? Can I still amend the 1120 return?

[JeffreyR77]

Yes, you can still amend the C-Corporation return, however you cannot amend or correct payroll that did not occur in calendar year 2020. 

The COVID-19 environment created challenges that are not yet fully understood. 

As an owner of a Corporation running a 25% loss in this environment not paying yourself a salary may have been a prudent cost cutting business survival business decision. 

When taxpayers refer to 'red flags' there are always individual facts and circumstances that the IRS evaluates if they review any individual case. 

COVID-19 certainly presents many individual facts and circumstances for consideration.

[yontida]

I tried to amend the 1120 return but the Turbotax Business prompted me for "high risk audit alert" after clearing all wages and compensation section to zero. My understanding is that if a company has earning, someone somehow must be working and someone have to pay tax on that earning one way or another.

Anyway I figured out that I could just put that Compensation of Officers to file the Miscellaneous income on my personal tax return and pay a big chunk of tax (more than social security and medicare) for it.

[JeffreyR77 · Accepted solution]

The high risk audit alert is because if wages were actually paid, then there should also have been employment taxes paid.  In your case, you didn't actually pay payroll and payroll taxes.  So I wouldn't worry about the alert when you zero'd out the compensation in your case.

You could make the case in the COVID environment that you paid yourself as a consultant  and issue a 1099-NEC (formerly 1099-MISC box 7). 

Report on Schedule C on your personal tax return and pay the self-employment tax there.  Amend the 1120 to move the compensation to Other deductions.