It seems that the corporation was profitable and she received money from the corporation (via personal expenses). That means she NEEDS to have a W-2, and all of the associated payroll forms and taxes need to be filed and paid.
Your wife needs to be on payroll and receive a W-2 for her "reasonable compensation" for her work. If she is the only employee, has no major equipment, and no employees, most or ALL of the profit should be wages on her W-2.
If your accountant did not explain this to her, you NEED to find a new accountant.
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As for what to do now, I would recommend fixing things. That requires quarterly employer forms (to pay Social Security and Medicare taxes_, Federal Unemployment, a W-2/W-3, and possibly some State requirements. All of those involve payments, late penalties, and interest. An amended S-corporation return would also be required.
The other option is to file the K-1 as-is and not do anything else. That would subject the profit to income tax, but avoid Social Security and Medicare taxes. If you do that, be prepared to be audited, as it is wrong and illegal (although with a small income like that, it may not catch the attention of the IRS). If you do it again this year, you probably WILL be audited. With a bank account that has both business and personal transactions in it, an IRS audit could be very bad.
Is there a reason why your wife made an election to be taxed as an S-corporation? From you are saying, it seems like she had no idea what was involved, including the extra paperwork and expenses. With a small profit like that, it seems quite unreasonable to be taxed as an S-corporation UNLESS you are paying for private health insurance (not through an employer) and are running the insurance through the corporation. In that case, it MIGHT be advantageous.
