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Hello. My name is ***** ***** I'll be the Expert assisting you today. Did you pay yourself a salary subject to payroll taxes in 2016? If you did not pay yourself a salary through wages in 2016 than you wouldnt classify them as wages / salary. They would be considered distributions. Payroll taxes would have to be filed and a W-2 / W-3 would have had to been filed back at the end of January 2017 for the year end December 31, 2016. There is an incentive for an S Corp to pay little or no wages to shareholder employees because flow through income from the S Corporation is not subject to self employment tax. If there are distributions from an S Corp and $0 in wages the IRS could re characterize those distributions as wages and you could be responsible to pay back payroll taxes on this. You should keep this keep this in mind going forward during the 2017 tax year. I hope I’ve provided the information you were seeking. If you are happy with my service, your 5-star rating at this time is most welcome. If you need more help, please let me know so l can continue to assist you.
That is correct, unless you go back and file late payroll tax returns including Form 940, Form 941 and your state payroll tax return. You can only claim wages on the business income tax return if they were in fact wages that were reported through payroll tax returns filed with the IRS / State. I can't advise you on whether the IRS would re characterize the income but based on the facts presented it should not be deducted as wages on the business tax return.
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