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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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on the 1120S I have a payroll company that I pay so while the

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on the 1120S I have a payroll company that I pay so while the Officer of the S corp, my W2 comes from them not my company so I have no W@ type income directly from the corp other than office advances or 50% of T & E, I do not have any info for the 1120s line 7. What should I be putting in that line item and how is it arrived at?
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

First, please know that the lines provided and labeled on the forms are only for convenience and the key factor is that all expenses are recorded accurately, regardless of the line entry, to arrive at the correct net income for the year.

So, whether you attempt to break out your officer compensation onto line 7 or leave it in the total paid to the payroll service is your choice and not a strict requirement.

 

From the instructions at http://www.irs.gov/instructions/i1120s/ch02.html#d0e2049

"Enter on line 7 the total compensation of all officers paid or incurred in the trade or business activities of the corporation. The corporation determines who is an officer under the laws of the state where it is incorporated."

"...Do not include salaries and wages reported elsewhere on the return, ..."

Additional details are in the instructions in regard to Include fringe benefit expenditures made on behalf of officers and employees owning more than 2% of the corporation's stock and those amounts are in Box 1 of the W-2.

In almost all cases the line amount is the total of the officer's Box 1 of Form W-2.

 

If you do not have any information and choose to use zero since the amount of officer compensation is reported elsewhere that is acceptable. Form instructions are not the legal requirement when filing.

 

If you prefer to list the gross wages for the officer(s) on line 7 you could list that on line 7 (as you presumably know or can find that amount of gross wages from the W-2(s)) and reduce the expense for the payroll service by that same amount, to not deduct that officer compensation twice.

 

There is a slight advantage in using line 7 to report the compensation of officers as that item has been under increased scrutiny in the past few years. Even if you were to get any correspondence questioning the zero amount on line 7 it can be answered by supplying information such as the W-2 for the officer(s).

 

Please ask if you need more discussion or clarification.

Thank you.

 

 

 

 

 

Customer: replied 1 year ago.

I guess I phrased my question a little fuzzy. I know I do not put W2 paid type in line 7. I know that I have to take 50% of T & E and I'm not sure but am thinking I have to take officer advances as income if I am not going to pay them back. Also I am not 100% about "benefits such as paid health care in that line items. That is why I was asking what items other than w2 items should go in that spot.


 

Expert:  jgordosea replied 1 year ago.

Hello again,

 

Basically only the items that are in Box 1 of the W-2 are compensation.

 

What you have termed office advances are likely distributions that are not wages or salary so are not here in officer compensation but rather are part of the distributions listed on Schedule K line 16d.

 

The unallowed one half of business meals is not compensation but is nondeductible expense of the corporation. This may be on Schedule M-1 if required, otherwise is only on the corporate books.

 

It is a requirement that an officer providing services to the corporation take a "reasonable salary" so the most correct treatment is to file a late W-2 if the officer did take money from the corporation and did provide services.

See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

"Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation."

This is a legal requirement and not a matter of choice or convenience.

 

That is, there is no other correct manner to report officer compensation of a more than 2% owner of an S corporation other than in Box 1 of Form W-2 when the officer has taken money from the corporation and provided services. .

 

If there were personal, not business, meals or other expenses paid by the corporation for the officer those will should also be part of the compensation in Box 1 W-2 but might be treated as distributions on Schedule K.

 

There is no need to file or include on Form W-2 money taken that can property be designated a loan which will be repaid. Even the personal items paid by the corporation may also be a loan to the officer. This is a part of the balance sheet.

 

The W-2 total from the payroll service is the correct amount to use in line 7 of Form 1120S (unless you choose to leave it in the payroll services total as previously discussed) and the other amounts will be on Schedule K as distributions. Health insurance paid and other benefits are already part of that Box 1 amount when done properly, or you may need to consider a corrected W-2 .

 

Hope this clarifies for you (even if not what you wanted to hear).

Please do ask if you need more help.

Thank you.

 

 

 

 

 

 

 

 

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3039
Experience: I've prepared all types of taxes since 1987.
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