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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I own a s corp And I know I did not pay myself a reasonable

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I own a s corp And I know I did not pay myself a reasonable salary should I contact the irs directly to avoid an audit. I am filing to tomorrow. Is there anything I should do proactively or just file and wait to hear from them.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to Just Answer!

Lev :

If you contact the IRS - most likely - you will trigger the audit - not avoid it.
The correct way would be to determine if your S-corporation has any income - if yes - you would pay yourself wages on the last day of the year - and there will be penalties and interest charges for not timely remitting employment taxes and not timely filing employment tax return.
If there is no net income received by S-corporation - there is no issues at all.
You may try to avoid employment tax issue if S-corporation pays you as a contractor and issue 1099MISC - so there will be NO income on S-corporation tax return and you personally will have self-employment income. So - overall tax liability will be the same - but you personally will pay both income taxes and self-employment taxes. Technically - that is not correct - but the IRS might accept as long as all income is reported and taxed.
If S-corporation has relative large net income AND there is no wages paid by S-corporation, but such income is passed to you via K1 - it is very likely that the IRS audits you and could assess employment taxes with penalties and interest charges. So - you might want to avoid such situation.

Customer: I paid my self a small salary so I should take the rest as a 1099.
Lev :

That what I would do in such situation to avoid employment tax assessment.
That will not provide any difference in tax liability because actually employment taxes would be converted to self-employment taxes - and liability will be shifted from S-corporation to you personally.
S-corporation will pay penalty for late filing of form 1099 - but that is a small amount.

Lev :

Please be aware that technically - that is not correct - and the IRS still may apply penalty for not paying wages - but as long as all income is reported and all taxes are paid - that would be very unlikely.

Customer: That is what I will do. Thanks
Lev :

Sorry for your situation.

Lev :

Unfortunately - there is no "perfect" solution - and either way there will be penalties for late payment and late filing (if you did not request an extension).
However penalties for employment taxes are generally larger - and that what you need to avoid first.

Customer: No I screwed up. I would rather pay the tax than go they pain and suffering. I have raised my salary so I will not ha e this happen again.
Lev :

If that is your concern - you would be OK as long as wages are paid on the last day of the year.

Lev :

However - if you are not able to handle timely all paperwork - you might be better off using S-corporation - and change your choice to a single member LLC treated as disregarded entity. But that is for next year planning.

Lev :

My goal is to provide EXCELLENT service.
Please be sure to ask if you have any other tax related issues.

Customer: So on 1099 misc form I enter it as royalties is that correct
Lev :

I do not think these are royalties...
Report on line 7 - Nonemployee compensation

Lev :

Then - you will report that amount as your personal self-employment income - and will add to your other taxable income.

Customer: So I file the 1099 with my business return or separately
Lev :

The form 1099MISC is filed by S-corporation separately. You need to use form 1096.

Lev :

You may attach a separate letter asking to abate penalties - because you are filing late.

Lev :

Here is the form 1096 - http://www.irs.gov/pub/irs-pdf/f1096.pdf

Lev :

Do not file copy A downloaded from the IRS website. Use original forms - order from the IRS or purchase in store like OfficeMax or OfficeDepot.

Lev :

To order from the IRS - use this page -
http://www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

The form 1099MISC is filed by S-corporation separately. You need to use form 1096.
You may attach a separate letter asking to abate penalties - because you are filing late.
Here is the form 1096 - http://www.irs.gov/pub/irs-pdf/f1096.pdf

Do not file copy A downloaded from the IRS website. Use original forms - order from the IRS or purchase in store like OfficeMax or OfficeDepot.
To order from the IRS - use this page -
http://www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22990
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Form1096 is not available has to be shipped to me. Should I wait and for the IRS to mail to me and file my business return today
Expert:  Lev replied 1 year ago.

You may file your business and individual tax return regardless of form 1099 and 1096.

Both forms 1099 and 1096 may be purchased in local store or may be ordered from the IRS. That is informational tax return - there is no tax with filing 1099/1096.

Because you will file late - there will be penalty - so I suggest to attach a letter with explanation of facts asking to abate penalty. You need to provide a reasonable cause. Be careful with that cause. If you write simply "I forgot" - it would be very unlikely that the IRS could consider that cause as reasonable. Generally health issues are acceptable.

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Lev
Lev
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Taxes, Immigration, Labor Relations