Schedule C Payroll

[Kkight]

Hi. I am a sole proprietor filing a Schedule C. I have a total of 3 employees, including myself. I enter the 2 employees in the COGS under Labor Costs. Do I enter my gross wages somewhere on the Schedule C? Do I enter my W-2 from the business as well in the Personal Income section? Thank you!

[VolvoGirl]

If you have a sole proprietor on Schedule C you DO NOT pay yourself or issue yourself a W2!

Sole proprietors cannot take a withdrawal or salary and include it as an expense on their tax return. As a sole proprietor, you are not an employee of the business. You don't pay yourself or enter a salary or withdrawal for yourself. All the business income and expenses are your personal income and expenses in the first place. You just fill out a Schedule C. The net profit or loss is your income.  If you have a net profit of $400 or more on schedule C you will pay SE self employment tax on it in addition to your regular income tax. It's all included on your personal 1040 form.  

(And if you paid yourself and deducted it as an expense then you would have to include it as income on the same tax return so it would be a wash.)

See Schedule C instructions page C-10 for line 26,  right above line 30, Do not include….amounts paid to yourself

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

[Kkight]

Thank you so much for your reply! I may have used the wrong verbiage in my original post. I am an LLC, with a company name & EIN, and file a Schedule C on my personal tax return. Is the answer you gave still the same? Sorry for the confusion!!

[AmeliesUncle]

Yes, her original answer is still correct.  You can not be paying wages to yourself.  You will need to amend your payroll returns to correct things.

I highly advise going to a tax professional, at least for a consultation.  You could also be making other significant mistakes.

[VolvoGirl]

What kind of LLC do you have?  If it is a Single Member LLC it is a disregarded entity and you file it on Schedule C in your personal tax return.

If it is a Single Member LLC that is an S corp or not a Single Member LLC you need to file a separate Business return for it and not Schedule C.  

Is this your first year with the LLC?   Yes you should go to a tax accountant and get it straightened out and set up right.

[Kkight]

I’ve had the LLC for several years. It is a single member & not an S Corp. Last year was the first year I processed payroll & have continued this year. Unfortunately I don’t have time to consult a tax professional, so would you recommend I file what I have, & then maybe have a professional file an amended return?

[AmeliesUncle]

When you submit your return, you are declaring under the penalty of perjury that the tax return is complete and correct.  So no, I would not recommend filing an incorrect tax return.