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patmag
Level 3

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question

Hello. Me and my wife (married filing jointly) are shareholder/owners of an S Corp.  We did not have a payroll or W2. I am not sure what select in Business Info -> About Your Business tab under "Did You Pay Shareholders, Employees, or Contractors 2019?"

I would appreciate someones help.

2 Best answer

Accepted Solutions
tagteam
Level 15

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question


@patmag wrote:

We did not have a payroll or W2. I am not sure what select in Business Info -> About Your Business tab under "Did You Pay Shareholders, Employees, or Contractors 2019?"


You would answer "No" to that question, but then note the "Audit Alert" on the following screen; S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation.

 

See https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

 

You might want to seek professional guidance with respect to your S corporation income tax return. Further note that Form 1120-S was required to be filed by March 16th of this year (unless you filed for an extension on or before that date), so the return is now past due.

View solution in original post

tagteam
Level 15

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question

The IRS could (possibly) recharacterize part of the net profit (ordinary income) as W-2 income (salary) but there is not much that can be done to rectify that situation at this point in time. Odds are it will go unchallenged or even unnoticed since the amount is rather small.

 

A distribution is essentially money or property you withdraw from the business. If you actually withdrew money (or property) from the corporation, then a distribution was made. If you did not, then there was no distribution. Note that shareholders have income tax liability on the net profit of the corporation regardless of whether there were any distributions.

View solution in original post

3 Replies
tagteam
Level 15

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question


@patmag wrote:

We did not have a payroll or W2. I am not sure what select in Business Info -> About Your Business tab under "Did You Pay Shareholders, Employees, or Contractors 2019?"


You would answer "No" to that question, but then note the "Audit Alert" on the following screen; S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation.

 

See https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

 

You might want to seek professional guidance with respect to your S corporation income tax return. Further note that Form 1120-S was required to be filed by March 16th of this year (unless you filed for an extension on or before that date), so the return is now past due.

View solution in original post

patmag
Level 3

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question

Thank you.

 

I couldn't find a knowledgeable accountant who did not charge a big amount of money and was knowledgeable, my business made only $14k last year so it decided to file the tax return this year myself. I had CPA's prepare my previous tax returns and all had errors i.e. all advised against payroll

 

I filed for extension before the deadline so we should still be good. 

Will it cause trouble if we did not have payroll? 

 

In this case, what would I select in 2019 Distributions to Shareholders, under Other than salaries and loan, did the corporation give any money or property to any shareholder this year? 

  1. Yes, the corporation made distributions to shareholders in 2019.
  2. No, the corporation did not make any distributions to shareholders during 2019.

 

tagteam
Level 15

S Corp - "Did You Pay Shareholders, Employees, or Contractors 2019?" question

The IRS could (possibly) recharacterize part of the net profit (ordinary income) as W-2 income (salary) but there is not much that can be done to rectify that situation at this point in time. Odds are it will go unchallenged or even unnoticed since the amount is rather small.

 

A distribution is essentially money or property you withdraw from the business. If you actually withdrew money (or property) from the corporation, then a distribution was made. If you did not, then there was no distribution. Note that shareholders have income tax liability on the net profit of the corporation regardless of whether there were any distributions.

View solution in original post

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