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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3173
Experience:  IRS licensed Enrolled Agent and tax instructor
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I have an S Corp Technology and Business Consulting business. I am filing taxes fo

Customer Question

I have an S Corp for my Technology and Business Consulting business.
I am filing taxes for last year, and am wondering what the difference/benefit is to using the business income versus income from S Corp (Lines 12 versus 17) on 1040.
I have noticed that if I include more on Business Income on line 12 that my 1040 as opposed to line 17 that my total tax amount decreases a noticeable amount, but am worried that doing so might increase my S Corp taxes
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
For example, if I include just 10% of total business revenue as line 12 Business Income and maximize the line 17 S Corp value, the 1040 tax amount is almost 3 times what it is if I include 90% of total business revenue as line 12 Business income and minimize the line 17 S Corp value.My concern doing so will increase the Corporate tax payment side
Customer: replied 2 years ago.
Just FYI, Line 12 on 1040 corresponds to line 7 on 1120S (Compensation of officers).
Expert:  emc011075 replied 2 years ago.
Hi. My name is ***** ***** I will be happy to help you.
S-Corp is a passtrough entity which means the income is not taxed on the 1120S return but pass trough schedule K1 to your personal return (1040). SCorps don't pay income tax. Income from SCorp is reported on K-1. You use the K1 to report the SCorp income on Schedule E and line 17 of your 1040.
As shareholder of your corporation you are considered an employee and your compensation should be reported on W2. W2 income goes on line 7 of 1040. More about it here:
Line 12 is for Solo proprietor income from Schedule C. Unless the Business Consulting is a separate business (sole proprietor), you do not report it on line 12.
Customer: replied 2 years ago.
What is meant, a separate business?
I am the only owner of the business. Does that mean it is a sole proprietor business? And if so, can any amount be added on line 12?
Expert:  emc011075 replied 2 years ago.
If you have registered Scorp, you are not sole proprietor. Line 12 is not for reporting SCorp profit or compensation. The compensation is usually reported on w2 and carried to line 7 and the corporate profit is reported on Schedule K1 and carried to Schedule E and line 17 of your 1040.
Customer: replied 2 years ago.
So how does line 7 compare with line 17? Are there benefits to splitting between the two?
Expert:  emc011075 replied 2 years ago.
Before you complete your 1040, you need to complete your corporate 1120S. As the shareholder of your corporation, you need to pay yourself reasonable salary, you are an employee of your own corporation. You should have issued yourself a W2 and your compensation has to be reported on line 7. Your salary is deducted on your corporate return from your income to arrive at corporate profit. Profit is reported through Schedule E on line 17.
It is not something you can split or move around as you want to maximize your refund. Both line 7 and 17 are subject to income tax (not much difference). However your salary is subject Social security and Medicare tax that should have been withheld and remitted to IRS by the corporation.
Expert:  emc011075 replied 2 years ago.
I see you read my respond. Any questions. Is there anything else I can help you with today?
And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.