Finance

Have finance questions? Ask a financial expert online.

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

I have a small family owned business, a S Corporation.

Recently, our son joined the...
I have a small family owned business, a S Corporation. Recently, our son joined the business. He owns 10% of the company's shares.
The bad news is that once he came on board, we had the worst year financially than in the past 15 years.
So we were hoping to pay him W-2 wages throughout the year, but there was not enough money to make it happen.
So now, we've paid him $650 a week for 52 weeks ($33,8000), but our net profit is $41,000.
My understanding is that his K-1 will reflect 10% of the net profit, $4100.00, but this messes him up in so many ways ... he has no income to show.
Am I missing something? Can you have shareholders wages without withholding?
Show More
Show Less
Ask Your Own Finance Question
Answered in 7 minutes by:
3/13/2018
Carter McBride
Carter McBride, Financial Advisor
Category: Finance
Satisfied Customers: 1,276
Experience: Adjunct Professor
Verified

Hey! I'm Carter, I'm a CPA.

You need to determine how you will treat the $33,800. It sounds like you should be issuing him a W-2. It's ok to not have withholding on it if you get a W-4 saying he is exempt. However, I'm guessing you didn't pay payroll taxes either. If that's the case, your best bet is to make it a distribution from the company.

So, his K-1 will have $4,100 on Line 1 as ordinary business income. Under Line 16D, he'll have $33,800.

If he has no other income, the standard deduction will get rid of the $4,100 so that will not be taxed. He will also have a distribution in excess of basis, which is a capital gain. The amount (assuming its his first year and he put no money into the business) would be $29,700 ($33,800 - $4,100). That's taxed at the capital gains tax rate, where he should fall into the 0% bracket and not owe tax.

Going forward, make sure you're doing payroll, so he can have withholding to meet his tax obligations. If he is doing work for the company, he is required to get a W-2 wage under IRC 162(a).

Let me know if you need anything else. If not, please leave a rating. Thanks!

Ask Your Own Finance Question
Customer reply replied 4 months ago
then, do I list the $33,800 under the Compensation of Officers? Form 1125-E?

No, it'll just be a distribution.

Ask Your Own Finance Question
Customer reply replied 4 months ago
where do I report that on the 1120S?

It'll go on the M-2.

Carter McBride
Carter McBride, Financial Advisor
Category: Finance
Satisfied Customers: 1,276
Experience: Adjunct Professor
Verified
Carter McBride and 87 other Finance Specialists are ready to help you
Ask your own question now
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a financial professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Carter McBride Your Own Question
Carter McBride
Carter McBride
Carter McBride, Financial Advisor
Category: Finance
Satisfied Customers: 1,276
1,276 Satisfied Customers
Experience: Adjunct Professor

Carter McBride is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,609 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,222 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,933 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
If either of the CPAs "Lev" or "Dr Fiona Chen" that answered
If either of the CPAs "Lev" or "Dr Fiona Chen" that answered my questions a couple weeks ago are still available, I'd appreciate working with either of the again. My question has to do with parents an… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
I am doing a project with a family member, and I am unsure
Hi, I am doing a project with a family member, and I am unsure about how to split the profit made. It is my small business and he wants to give me an invoice with his share of the profit plus gst. I a… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,461 satisfied customers
I have a question on taxes for my small business. So I'm
So I'm trying to figure out what amount I have to pay in income taxes in this example … read more
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,490 satisfied customers
Lets say you have an LLC with 3 members (Member A 20% /
Lets say you have an LLC with 3 members (Member A 20% / Member B 20% / Member C 60%)Member C works full time in the LLC and Member A/B are just passive owners.Member C pays himself 20k$ per month in s… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,172 satisfied customers
We are a technology startup with 4 shareholders. Since our
We are a technology startup with 4 shareholders. Since our balance sheet and P&L have become a mess over the years of R&D, as we start monetization, we'd like to start with a clean slate (a new compan… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am working with an individual who is a 100% owner in two
I am working with an individual who is a 100% owner in two business - one is a single member LLC, and the other is an S-Corp. Both companies report on cash basis. The LLC buys parts and then sells the… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I need help filling out the shareholders basis worksheet.
I need help filling out the shareholders basis worksheet. The one shareholder that we are trying to fill it out for is as follows. The Vice President does not work directly for the company. This compa… read more
BK-CPA
BK-CPA
Bachelor\u0027s Degree
919 satisfied customers
Lane and I hope all is well. I'm not sure what happened
Hi Lane and I hope all is well. I'm not sure what happened on Saturday but I ordered a phone call, paid $39 and never heard anything back from JustAnswer on how to proceed. We got everything figured o… read more
Lane
Lane
JD, MBA, CFP, CRPS
Doctoral Degree
47 satisfied customers
We sold most of our business equipment last year. it had all
we sold most of our business equipment last year. it had all been depreciated after filling out 4797 it looks like this will all be profit on line 24 and line 31 a. can we get back our loans to corp w… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
i own a business with 1 partner. he gets 70% of profits while
i own a business with 1 partner. he gets 70% of profits while I get 30% of profits. we put money up for rent every week ($275). he says overhead costs should be taken out of weekly profits evenly then… read more
R. Klein, EA
R. Klein, EA
Accountant
Master's Degree
480 satisfied customers
If a 100% shareholder officer of a c-corp pays himself 50k
If a 100% shareholder officer of a c-corp pays himself 50k throughout the year, which, after expenses, leaves the company with 0 profit, where/how do I report the 50k as income on the shareholder's pe… read more
R. Klein, EA
R. Klein, EA
Accountant
Master's Degree
480 satisfied customers
I am 50/50 partners in an s-corp. My partner resigned from
I am 50/50 partners in an s-corp. My partner resigned from his role as director and that same day withdrew a considerable amount of money (160k) from our corporate accounts. Now towards the end of the… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
Hi Sir, I am a 100% shareholder of S-Corporation, but I
Hi Sir, I am a 100% shareholder of S-Corporation, but I purchased a business with my partner he is not shareholder of my S-corporation but the purchased business is running under my S-corporation. at … read more
Megan C
Megan C
Certified Public Accountant (CPA)
Master's Degree
2,222 satisfied customers
Question for rgb02a, Accountant . Need help to calculate the
Attachment: 2012-10-19_073721_1-1-11.pdf Attachment: 2012-10-19_073744_1-1-12.pdf Attachment: 2012-10-19_073809_8-31-12.pdf Attachment: 2012-10-19_073826_12-31-10.pdf Attachment: 2012-10-19_073841_12-… read more
rgb02a
rgb02a
Chief Financial Officer
Bachelor\u0027s Degree
16 satisfied customers
Hi, I have a full-time salaried job. I also have a side
Hi, I have a full-time salaried job. I also have a side job as a civil engineering consultant (S-Corp). I have not had any income this year from the side job (have not paid myself anything either) but… read more
JKCPA
JKCPA
CPA
Bachelor's Degree
844 satisfied customers
My business partner and I are flipping a house and have the
My business partner and I are flipping a house and have the buyer (someone we know) under contract. When asked if he had $5000 for the deposit he said yes. He has a full time job as well as a tree ser… read more
Eric
Eric
Financial Manager
Bachelor's Degree
559 satisfied customers
I hired a CPA who prepared ,y taxes as I was from another country
I hired a CPA who prepared ,y taxes as I was from another country on a visa. He was able to get my taxes back saying I was eligible based on some treaty. Now the IRS is behind me saying its was messed… read more
Smartpants
Smartpants
Associate Degree
18 satisfied customers
Lily cosmetics has annual sales of $5,000,000 maintains a ...
Lily cosmetics has annual sales of $5,000,000 maintains a net after tax profit margin of 5% and has a sales-to-assets ratio of 4. a. What is its return on assets? b. If its debt/equity ratio is 0.5, w… read more
Rahul Jain
Rahul Jain
Director
Master Degree
416 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x