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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 647
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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On an S Corp an individual receives "compensation of officers".

Resolved Question:

On an S Corp an individual receives "compensation of officers". Is this put on his personal return and if so what line?
Submitted: 2 years ago.
Category: Tax
Expert:  Phillip B, EA replied 2 years ago.
Thanks for using JustAnswer.com!

"Compensation of Officers" in an S-corp (and to S-Corp shareholder-employees) should be paid from the S-Corp to the Officer as W-2 wages. If the compensation was paid as wages, the income would go on line 7 of the individual's form 1040.

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Customer: replied 2 years ago.

What if the compensation was not paid on W2? Then how should this be handled, as miscellaneous income?

Expert:  Phillip B, EA replied 2 years ago.
Not paying compensation of officers on the W-2 can be problematic. However, if this is the case I would suggest treating the compensation as self-employment income on the recipient's individual 1040. This is not the proper way to treat compensation of officers or shareholder-employees, but it will at least cover social security and Medicare taxes that would've been withheld on the W-2.

Let me know if there's anything else I can do.
Customer: replied 2 years ago.

So would this be taken to Schedule C or just put on SE form?

Expert:  Phillip B, EA replied 2 years ago.
I would put the income on your schedule C without any expenses. Schedule SE will pick up the self-employment tax.
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 647
Experience: Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
Phillip B, EA and 7 other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank You!! Even though I pay a monthly fee I have sent you a bonus. I appreciate your quick responses and your explanation in every day language.

Expert:  Phillip B, EA replied 2 years ago.
My pleasure.
Customer: replied 2 years ago.

I do have another question. On an LLC the owner takes a monthly draw. This should be treated as a guaranteed payment and not put on W2 correct?Personal items paid by the company should be considered a draw and are not taxable but a guaranteed payment (monthly draw) is taxable correct? This then goes to line 10 of the 1065 and line 4 of schedule K1 and is included in income on the personal 1040? The owner has used all of their original investment.

Customer: replied 2 years ago.

I do have another question. On an LLC the owner takes a monthly draw. This should be treated as a guaranteed payment and not put on W2 correct?Personal items paid by the company should be considered a draw and are not taxable but a guaranteed payment (monthly draw) is taxable correct? This then goes to line 10 of the 1065 and line 4 of schedule K1 and is included in income on the personal 1040? The owner has used all of their original investment.

Expert:  Phillip B, EA replied 2 years ago.
In a partnership or LLC taxed as a partnership, ordinary income to general partners or member-managers is taxed for self-employment tax. Therefore it is not necessary for member-managers or general partners to receive income as a W-2 or as guaranteed payments.

If there are limited partners or non-managing members who are working in the partnership or LLC, they should receive payments for services as guaranteed payments. The guaranteed payments are taxable for self-employment taxes but the ordinary income from the K-1 is not taxed for self-employment taxes.

Personal expenses paid by the LLC or partnership will be treated as distributions. The amounts will be entered in schedule K of form 1065 on line 18c as nondeductible expenses.

Let me know if there is anything else that I can do for you.
Customer: replied 2 years ago.
So if the partner is taking a draw every month this is just coded as ordinary income then put on C and SE?
Expert:  Phillip B, EA replied 2 years ago.
Actually, the ordinary income would show up on schedule E and then schedule SE would be used to tax the ordinary income for self-employment. No schedule C would be necessary in this situation.
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 647
Experience: Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
Phillip B, EA and 7 other Tax Specialists are ready to help you

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Phillip B, EA
Phillip B, EA
Tax Advisor
537 Satisfied Customers
Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.