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cbusa
Level 2

Can a s corp pay a sole proprietor for legit services/business expenses?

Can a s corp pay a sole proprietor for legit services/business expenses? Does it make a difference if one of the owners of the s corp is sole proprietor? What is the proper way come tax time should the s corp issue a 1099-MISC to the sole proprietorship?

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Accepted Solutions
VolvoGirl
Level 15

Can a s corp pay a sole proprietor for legit services/business expenses?

If you are paying one of the owners you probably need to give them a W2 and/or a K-1, not a 1099NEC .

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Critter-3
Level 15

Can a s corp pay a sole proprietor for legit services/business expenses?

It is possible that the s-corp could hire the Sole Prop as a contractor if that business does something for the s-corp outside of it's own business.  For instance an s-corp  sells widgets and owns it's own building could hire the sole prop lawn service  to mow the lawn ... then that would be a legit situation.  However if the S-corp mows lawns then hiring the owner's sole prop to also mow lawns could be considered a tax avoidance scheme which would be unwise. 

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3 Replies
Mike9241
Level 15

Can a s corp pay a sole proprietor for legit services/business expenses?

the issue is whether the SP is working for the Corp (in effect as an employee)  or working for himself. it depends on the business of both.  Note that the IRS strongly frowns on officers/owners/executives performing services for the S-corp not getting a salary. the penalties can be huge. 

there is just not enough info to make a determination 

 

what you consider legit services the IRS may not. 

 

VolvoGirl
Level 15

Can a s corp pay a sole proprietor for legit services/business expenses?

If you are paying one of the owners you probably need to give them a W2 and/or a K-1, not a 1099NEC .

Critter-3
Level 15

Can a s corp pay a sole proprietor for legit services/business expenses?

It is possible that the s-corp could hire the Sole Prop as a contractor if that business does something for the s-corp outside of it's own business.  For instance an s-corp  sells widgets and owns it's own building could hire the sole prop lawn service  to mow the lawn ... then that would be a legit situation.  However if the S-corp mows lawns then hiring the owner's sole prop to also mow lawns could be considered a tax avoidance scheme which would be unwise. 

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