Does a sole proprietor of an S-corp create a k-1 & 1099 or W2?

[gworful]

I paid myself by writing checks from my S-Corp to my self throughout the year but didn't W2 or 1099 myself... I was told it would be considered a draw and already included in the information I inputted. But I was also told to buy the turbotax software and it isn't too late to create a Schedule K-1 and W-2 for 2015 before I file? or a 1099 instead of a W2? Help! Im filing my S-Corp and personal taxes but haven't filled out a schedule K-1 or W2 (or 1099?).Confused on what I need or still can fill out to show that I personally paid myself by writing checks.

[IsabellaG · Accepted solution]

As the sole owner of a Sub-S corporation, any compensation that the corporation pays you (you have to think of the corporation as a separate entity) is to be reported as wages, on a W-2. 

You're supposed to withhold income taxes, and employment taxes (Social Security and Medicare and FUTA) on your wages, and the corporation pays the employer's part of those payroll taxes, and the corporation files quarterly tax returns during the year to report the payroll taxes and withholding and makes payments, usually monthly, with the IRS.

You are late in doing this, although there is still time to file a W-2 with Social Security (2/29 for paper file, 3/31 for efiling).

You are definitely late because you haven't been withholding and reporting properly all year. You can file these forms (941s /940) late with the IRS, but you will be subject to penalties.

I urge you to consider finding a tax professional to help you get back on the right track with the IRS as soon as possible, at least to get you started in the right direction.

Please see these links for more information: https://www.socialsecurity.gov/employer/filingDeadlines.htm

https://www.irs.gov/uac/Wage-Compensation-for-S-Corporation-Officers

https://www.irs.gov/pub/irs-pdf/p15.pdf

[greengoblinexpre]

second link not working properly

[rjamison]

This is not entirely accurate.  Not all amounts paid to the shareholder need to be classified as wages.  While a reasonable wage should be paid, non-wage distributions from a profitable corporation should also be expected.

[philmckracken911]

What would be considered a reasonable wage for a s-corp in only it's second year of operation, the first year being a short period and a loss(2017)? 10-15% of income?

[Lisa995]

If you had been hired to do that job, what would be a reasonable salary to expect to be paid?

[Critter]

OK ... first if the S-corp is not on extension (due 9/16) then the corp return is very late and the penalties/interest is piling up.  And if this is your first time filing an 1120-S then local professional help is highly recommended to get educated on what is expected and required. 

Next ... if you will attempt this yourself you need 2 tax programs ... one for the corp and one for the personal return .... and the corp return MUST be completed FIRST. 

To prepare a corporate, trust or partnership return you would need Turbotax Business.  This is a separate program from Turbotax Home and Business.  TT Business is a program only available for desktop windows use (there is no on-line or Mac version.) 

http://turbotax.intuit.com/small-business-taxes/

https://turbotax.intuit.com/small-business-taxes/forms-business.jsp

https://ttlc.intuit.com/questions/1917225-is-turbotax-business-right-for-me

To prepare a personal return, depending on the complexity, you will need a version that prepares Forms 1040 such as Deluxe, Premier, Home and Business, etc.   If you have a Schedule K-1 from either a Form 1120-S, Form 1065 or Form 1041 you will need either the Premier version or (if you also have an unincorporated business) the Self Employed version when using the online program.  

All the 2018 downloaded programs will handle the personal return.

View this product guide chart to see which product is best for you:
https://turbotax.intuit.com/personal-taxes/cd-download/

[Deeter]

Hello,

I appreciate your discussion here. I am a little confused, because I am the only officer/individual for an LLC taxed as an S corp. The LLC earned X dollars last year, and transferred Y to my personal account. On my 1120S, I put Y for Compensation of officers. I'm the only officer.

This then generates a K-1, not a W-2.

I then took the K-1 and entered it on my 1040. I notice on statement A, referring to box 17, it has
W-2 Wages: Y(the amount I transferred to myself).

So I entered that in the correct place on my box 17.

The problem is, no matter what amount I put there, it doesn't seem to change my tax refund. This is concerning to me, because even if I double it, it still doesn't change my tax refund.  

I am reading that this is because it does not reflect my income, but the total paid.

So how do I make sure it's reflected as income?  

The 1120S does not produce a W-2, and I am reading I wouldn't get a W-2 anyway as an officer.

Can you tell me why it wouldn't affect my refund?

[Mike9241]

other than an S-Corp whose only activity is passive. the officer(s) are supposed to take reasonable compensation for the services they perform.  that has to be reported on a w-2. payroll tax returns have to be filed and payroll taxes that are withheld need to be paid in on a timely basis.  failure can result in substantial penalties.   

line 17 is an info only box for QBI purposes that goes nowhere.  as a matter of fact what's on line 17 should really be on line 16D.  can't say if reporting wages on line 17 will result in an audit when your s-corp did not file w-2's.  what you took out of the corporation is not wages but distributions of the profits which does not affect your 1040.  what it does is reduce your basis in the entity.  

you need to see a tax pro to get educated on tax and other things an S-Corp has to do before the IRS pays you a call. 

[Deeter]

Thanks for your response.   When I talked to a CPA last year, he said just put it as compensation of officers.  I did so, and that's what I was planning to do this year.  In doing so, I don't see how a w2 is generated?  

Am I supposed to be paying something throughout the year, outside of the tax software?  This is what is confusing to me.  

[JamesG1]

You should be paying yourself reasonable compensation throughout the year and reporting the income on a W-2.

You would be remitting state and federal withholding taxes and filing Federal 941, 940, state equivalents and, possibly, state unemployment taxes.

Your state and local governments may have specific requirements that can vary quite a bit from state to state.

See this IRS publication.

[philmckracken911]

The line 21 net income or loss flows to personal return, last year would have been schedule 1, line 5 which is carried forward to line 7a of your 1040 and you pay tax on the distribution there. Then if the income is QBI you can deduct 20% of it on the 8995. 

The IRS looks that your report at least some of this net income as wages, thus the need for a W-2. Even though you are paying yourself, you still need to file federal 941's for Social Security and Medicare at 15.3%. Most people make estimated payments for federal, and possibly state, as required. Then you don't have to "withhold" federal or state tax for the W-2, that is simplest. But issuing a W-2 means you then need to file a W-3 along with a copy of the W-2 you prepare for yourself. Pain in the @ss but a evil necessity as a sub-s corp. The IRS doesn't look kindly upon just paying tax on the distribution. They want their 941 money. But the wages and payroll taxes you incur serve to reduce the net income/distribution of the s corp. Unfortunately for this year the W-3 and W-2 copy are due by tomorrow February 1st, 2021.

Good luck and sorry for the late response. 

[cgilcken]

Hello,

Well, I'm in need of some education as it pertains to my S-Corp. I too am the sole officer/owner and set it up myself to help reduce my tax liability. Frankly, I don't know what the "He" double hockey sticks I'm doing. That being said, I made less than 80% of what I estimated, and paid 3/4 of the estimated taxes to both the Franchise Tax Board and Feds. I am in the same boat with needing to submit W2 by tomorrow, and never withheld Social Security and Medicare. Am I understanding correctly, since I paid estimated federal and state taxes, am I alright with not deducting for SS & Medicare? 

I hope I'm being clear.

Thank you,

[Mike9241]

you shouldn't file a w-2/w-3 since you haven't filed payroll tax returns (form 941 and 940 + any state payroll tax returns that might have been required) to report wages paid and the FICA, Medicare, and Unemployment Taxes you should have paid. the penalties for failure to file and pay can be severe.  see a pro to get educated because you need more help than can be provided in this forum.  

[philmckracken911]

I agree ...don’t file the 941/w-3 but let’s not get our panties in a wad here. No need to run out and hire outside help unless you want to. If this is your first year filing for this S-Corp and your revenue is way low I would just be proactive going forward this year. File 941 quarterlies even if it just a small amount. Any remittance is better than none. Then reconcile at year end. Most small businesses don’t know their income/loss until year end and there fore file their largest 942 payment on January 15th. That’s advice I got from another CPA( yes I am one too) back when I started my s Corp in 2016. Just make sure you file the informational 1120s and k-1 by March 15th because those penalties are ridiculous....but can be abated if it’s your first offense. And that’s a fact from personal experience.