Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

I need to find out if there's a way to report actual

I need to find out...
I need to find out if there's a way to report actual earnings of each of two officers in a sub S corporation on their K-1s (they operated separate businesses with separate dba's) rather than income based on ownership percentage. One of the owners was an officer for part of the year, the other was an officer the entire year. I can explain in more detail in a moment.
Show More
Show Less
Ask Your Own Tax Question
Customer reply replied 5 months ago
This question is actually about my own accounting business which is set up as an S corp. My husband was also an officer of the corporation, and we set up “Josh Mayfield PA-C” as a dba because he works as an independent contractor for a hospital, so I kept the books for both of our companies under one corp, with each of us a 50% owner. However, we divorced last year, so I set up a new corporation for him, and he was removed as an officer from my corporation mid-year. Our divorce was final before year end, so we’ll be filing separate tax returns this year. My question is: is there a way to report actual earnings for each of us on K-1s for the corporation that we were both officers of until mid-year? I kept track of the separate income and expenses for both of our businesses, so I know how much should be allocated to each of us (me ~ $39k, him ~$63k), but it seems my only option is to indicate when he left the corporation, which would give me something like 71% ownership and him 29%, which makes my K-1 income higher than it actually was, and his lower than it actually was.
Answered in 36 minutes by:
3/8/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Actually IRS has issue regs on how to deals with the issue of a shareholder leaving mid-year.

....

In regulations under Internal Revenue Code Sec. 1368, the IRS has determined that if there is more than a 20% change of ownership in the corporation during a year, the corporation may elect, by consent of all of its shareholders, to allocate income on an actual closing of the books basis as of the date the change of ownership hits 20% during any taxable year.

...

So this allows you to allocate his final k-1 based on time AND ownership (his 50% for the time he was 50% owner)

...

However, this (checking the final k-1 box) is only allowed if his ownership is 0% at the end of the year.

...

The issue this raises is that there needs to be a gift or a sale... some sort of transaction that gets him out of the S-Corp as an owner.

...

Listen, Terri, I have to go pick up my daughter but will be back on in less than an hour and we can go from there ... hope that's OK

Ask Your Own Tax Question
Customer reply replied 5 months ago
No worries, I'm in the same boat actually (need to go pick up my daughter!)... I can respond later tonight or tomorrow and we can resume then. I'm not in a big rush on this. Thanks!

Ok, back ... but the bot***** *****ne here is that S-Corp shareholders are owners and there needs to be a buyout either by the S-COrp or another shareholder. This allows you to give him a final K-1 that is essentially proportionate to the time he was an owner (factored, of course, by his ownership percentage for that time).

...

There was a time when checking the final K-1 box was allowed only to reflect the termination of the parent S Corp, not the individual shareholder interest. That's not the case anymore. The common practice today is (once the buyout is executed ... either by you buying him out or the S-Corp redeeming the shares and holding as treasury stock, the S Corp issues the departing shareholder his last K-1 and submit a copy of that form to the IRS, marking the box for Final K-1.

...

The K-1 should cover the shareholder’s portion of the business’s financial activity for the period, starting at the beginning of the business’s tax year to the day he sold his shares.

Ask Your Own Tax Question
Customer reply replied 5 months ago
Okay. So what does the IRS actually need to see/what do we need to do in terms of paperwork for me to buy him out as of 12/31/17? (I checked; we haven't done anything to officially remove him as an officer of the corp). Or is it as simple as just checking "final K-1" on his K-1? We have an amicable relationship; in fact, I still do his accounting for him. So we will come to an agreement on our own to rectify the fact that I'll be paying income tax on income that was actually his that he kept, since it sounds like there's no way around splitting our combined income under the corporation 50/50, since we were each 50/50 officers of the corp.

A simple shareholder agreement between the two of you (and would only be needed in the event of an audit).

...

And no, officers (a function) and ownership, are two different issues. You should keep a stock ledger that defines who owns the stock.

...

A shareholder agreement for you to buy him out for $1 then then changing the stock ledger with that date (OR again, having the S-Corp buy him out (called a stock redemption) in this case you'd show the shares as treasury stock in the stock ledger, will do it.

...

This then allows you to give him a final k-1 that reports activity allocated to him until that date, without terminating the business.

...

See this: https://www.allbusiness.com/asset/2015/02/7.1-Stock-Ledger-and-Capitalization-Summary.pdf

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 5 months ago
That answers my question, thank you! I'm sure you'll hear from me again the next time I have a tax question. It sure beats making an appointment with a CPA, going in and paying several hundred dollars. I'll leave you great feedback. Thanks, Lane!

Glad to help. Thanks for thinking of me.

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
14,894 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane 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:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

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

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
I understand that an S Corp. can only have individual
I understand that an S Corp. can only have individual shareholders. My question is wether I receive my K-1 income as a dba (still using my individual SSN), which dba on its schedule C employs my husba… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,680 satisfied customers
Had a S corp business in 2016, sold in feb 2017, taxes not
had a S corp business in 2016 , sold in feb 2017, taxes not filed for 2016, 2017. The owner in 2016 is responsible for filing 2016 taxes . Question 1_ Now we are filing taxes for 2016 ( late) who shou… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am filling my personal taxes and I am believe I am
I am filling my personal taxes and I am believe I am claiming my 1099-k income properly via turbo tax. But I am unsure if i need to and/or how I would filed a 1065 … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,680 satisfied customers
I have LLC active business and I've purchased a car in 2017
I have LLC active business and I've purchased a car in 2017 that is used for both personal and business use. I would like to depreciate the business use of it. Considering sec179 and standard deprecia… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
Several Tax Filing questions about a Multi Member LLC with 2
Several Tax Filing questions about a Multi Member LLC with 2 DBAs and Tax FilingPresently our Multi (2) Member LLC has 1 DBA (operates as Partnership), last year I used TurboTax to create a1065 and 2 … read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
I have an S-Corp, set up in 2007 for online retail sales.
I have an S-Corp, set up in 2007 for online retail sales. I'm the sole owner & officer. I disabled the website in Feb 2016 with minimal 2016 revenue to report. Business bank account & credit cards are… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
NYS IS BILLING AN S CORP CLIENT OF MINE TAX LIABILITY. HE
FOR STEVE, NYS IS BILLING AN S CORP CLIENT OF MINE FOR PAYROLL TAX LIABILITY. HE DOES NOT HAVE ANY EMPLOYESS AND HE RECEIVES A K-1 FOR HIMSELF. THE NYS TAX AGENT HELPING US SAYS THAT IF HE WERE A DBA … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
I own an accounting business which is set up as an S corp,
I own an accounting business which is set up as an S corp, and pay myself W-2 wages from the business. My husband Josh is an ER PA and started a new job last year at a hospital where they pay provider… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
Bean counters! I'm self-preparing my 2014 1102S (six month
Hi all bean counters! I'm self-preparing my 2014 1102S (six month extension filed in March). We moved our business from VA to IL in mid-august and re-incorporated in IL Aug 18th. So, I have the Federa… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
Myfriend purchased( existing) business in nj. he would report
myfriend purchased( existing) business in nj. he would report taxes as sol proprieter. what would be needed to open bank a/c.?ts different when you buy a business as opposed to forming it from start. … read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
Our business is an s-corp in Hawaii. There are three share
Our business is an s-corp in Hawaii. There are three share holders. One holds the majority shares and has nothing to do with running the business. He lives out of country and is paid a monthly sum plu… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
Are cash contributions to S-corporation MUST be in proportion
Are cash contributions to S-corporation MUST be in proportion to the ownership percentage between 2 shareholders? How it will affect taxes? What about owner distributions - they also must be in propor… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
My friend Bill formed an S corp in 2002. He was the only shareholder.
My friend Bill formed an S corp in 2002. He was the only shareholder. There are 250 shares, but he only owns 10. There are two other people involved in the corp. One worked for several years as a secr… read more
Lane
Lane
JD, CFP, MBA, CRPS
Doctoral Degree
14,894 satisfied customers
I am a New York City resident. I am a construction consultant.
I am a New York City resident. I am a construction consultant. I am going to be paid via 1099 for consulting work on homes being built here by a Pennsylvania contractor. My question is am I better off… read more
Charles Greiner
Charles Greiner
Owner
Bachelor's Degree
2,436 satisfied customers
CPA - Accounting Question - I am in the process of setting
CPA - Accounting Question - I am in the process of setting up a new sub chapter S corporation. Before finalizing my company structure I wanted to obtain an opinion from a CPA Accountant on the impact … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
Hi, I plan to run various different websites, all generating
Hi, I plan to run various different websites, all generating income in different ways. Each website will have it's own name and I will be receiving payments made out to each name. I also do consulting… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I live in Florida and use to be in a partnership with my sister
I live in Florida and use to be in a partnership with my sister and brother in law. They are divorcing and it's very strained. Through working out on their divorce, he was given sole ownership of the … read more
Merlo
Merlo
Tax Consultant
558 satisfied customers
I left and moved out from husband mid-May of last year. During
I left and moved out from husband mid-May of last year. During mediation in October it was agreeded that the S-corporation that I had 49% of the shares would belong to him (no money exchanged). I neve… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 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