topic S-corp did not pay myself a reasonable salary in Business & farm

S-corp did not pay myself a reasonable salary

gustavoc1 — Wed, 11 Feb 2026 06:11:46 GMT

This will be my first year filing as an S-corp. During beginning of the year, I had very low income and therefor only issued myself W2 income in the amount of $3,000. I ended up have more income toward the end of the year but did not issue myself anymore W2 income. When it came to tax time I realized I did not pay myself a reasonable salary" so I issued myself a 1099 to make up the difference. Where would I enter the 1099 income? Would it be considered a deduction to ordinary business income?

Re: S-corp did not pay myself a reasonable salary

DavidD66 — Wed, 13 Mar 2024 03:47:01 GMT

You will have to report your 1099 income on Schedule C as self-employment income. Issuing yourself a 1099 is a fairly common work around for not having paid an adequate salary and reporting on Form W-2; however, it is not the correct way to pay yourself. That said, it will probably go unnoticed, especially if it is a one time occurrence. The 1099 should have been a 1099-NEC. To report it,

Click on Search
Enter 1099-B
Click on the Jump to Link
TurboTax will guide you through reporting your 1099 Income

Re: S-corp did not pay myself a reasonable salary

Mike9241 — Wed, 13 Mar 2024 06:29:50 GMT

I would not take the QBI deduction on the schedule C.

REG 1.199A-5(d)(3)

(i)Presumption. Solely for purposes of section 199A(d)(1)(B) and paragraph (d)(1) of this section, an individual that was properly treated as an employee for Federal employment tax purposes by the person to which he or she provided services and who is subsequently treated as other than an employee by such person with regard to the provision of substantially the same services directly or indirectly to the person (or a related person), is presumed, for three years after ceasing to be treated as an employee for Federal employment tax purposes, to be in the trade or business of performing services as an employee with regard to such services. As provided in paragraph (d)(3)(ii) of this section, this presumption may be rebutted upon a showing by the individual that, under Federal tax law, regulations, and principles (including common-law employee classification rules), the individual is performing services in a capacity other than as an employee. This presumption applies regardless of whether the individual provides services directly or indirectly through an entity or entities.

you have no legitimate rebuttal. if you take it and are caught you and The S-corp would face a slew of additional taxes, penalties and interest.